The news from Cisco was a kind of Goldilocks earnings report: in-line earnings per share of 38 cents, which might be a disappointment to the big bulls out there hearing whispers of something north of 40 cents.
A small upside surprise on the topline to the tune of $30 million: $9.83 billion instead of the consensus of $9.8 billion the Street was looking for. Until the guidance. Ouch.
On the conference call, Chief Executive John Chambers dropped a bombshell of sorts, calling the forecast of upcoming quarters "extremely challenging." He went on to say, after several minutes of clarification and set-up, that he expects 10 percent growth for the company's third quarter. The Street's prediction was 13 percent to 16 percent.
Worse, Chambers says he anticipates January's order growth rate to continue for the next several quarters.
"Cisco will always be affected by major economic changes," he says. "There may be times when our revenue growth is above the 12 percent to 17 percent range, and times that it will be below that range."
But he remains optimistic even though his key takeaway from his visit to the recent World Economic Forum was one of caution.
Still, the damage is done: Cisco shares , after turning positive from the 17 percent revenue pop when Cisco itself had forecast 16 percent growth, turned south. The deep south.
Needless to say, big cap tech is getting nailed: IBM, HP, Microsoft, Google are all lower on the Cisco news.
I think early on in the call, news of a revenue beat got some tongues wagging that the company would be on deck to raise guidance for its fiscal third quarter and full year 2008. That didn't happen.
On the conference call, Chambers says he's still comfortable with the company's longer term revenue growth of 12 percent to 17 percent. He also says Cisco's second quarter book-to-bill ratio was approximately 1.0, considered a solid harbinger of ongoing orders and business development.
Chambers says order momentum on the quarter remained solid, and he's seeing a healthy performance overseas, though a little surprising is the perceived weakness in the company's European business, up only 8 percent from the same period a year ago. Emerging markets grew 24 percent, Asia-Pacific up 23 percent and the U.S. up 12 percent.
Still, it's the guidance and those words "extremely challenging" that will grab the headlines and grab investors by the throat. This report hurts.
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