It's always a crapshoot what comes out of Cisco Systems' CEO John Chambers' mouth, and he's in the rare position of being able to utter a single word or phrase that could buoy or blast an investor's portfolio.
The company releases strong earnings, yet Chambers has used words like "challenging," "sluggish" or even the recent favorite "squishy" and Cisco leads the tech sector lower. Chambers, 58, also recently talked about his planned succession when the office of CEO at Cisco will likely "be different five years from now than it was five years ago," which was good for a big-time plunge in Cisco shares. And just last month, the normally optimistic Cisco CEO changed his stance on when tech spending would improve, now looking toward some time next year, instead of the latter part of this year for some kind of tech turnaround. Needless to say, those comments too sent Cisco shares tumbling as analysts quickly cut forecasts for the company.
So flash forward to today where investors are once again expecting a fairly strong quarter from the networking giant. Consensus on the Street has Cisco earning 39 cents a share on $10.31 billion, compared to the 36 cents on $9.43 billion the company earned during the same period last year.
Guidance, so important with this company, is expected to come in at 40 cents a share on $10.39 billion. And of course, these expectations take into account the company's revised guidance from April when Cisco reduced short term targets to between 10 percent and 15 percent growth, while it kept its longer term expectations at between 12 percent and 17 percent. Gross margins should be just shy of 65 percent; operating margins at 28.4 percent.
But because of Cisco's size, and Chambers' penchant for meeting with customers face to face in a variety of geographies, his analysis of the global economy is so valuable. On the conference call, Chambers' commentary will be parsed in much the same way Greenspan and Bernanke are picked apart. What Chambers has to say about business in Europe and Asia is absolutely key. There's been a lot of concern lately that there might be a slowdown of sorts in some key countries. But analysts expect emerging markets to do well for the company.
So if there is weakness, the questions are how bad, and from where. Remember that 55 percent of Cisco's sales came from US and Canada last year, so unlike so many other big tech companies (Intel , Microsoft , Hewlett-Packard ) that see a majority of their sales from outside the US, Cisco can offer a good glimpse into the health and welfare of US enterprise tech spending.
Beyond that, guidance becomes critical and its not clear that Cisco will offer any. Citigroup isn't expecting Cisco to offer any formal guidance for fiscal 2009. The Street expects $1.69 on $43.39 billion, but without those guidance numbers from Cisco itself, investors might get even more skittish.
Still, with rival Juniper Networks reporting stronger than expected earnings a couple of weeks ago, and ponying up big-time cash ($800,000 annual salary, $5 million signing bonus, a boatload of options and mortgage help) for the company's new CEO Kevin Johnson (lured away from Microsoft), there's a thought that maybe Cisco's business will be in better shape than some expected. As long as Juniper's good news didn't come at Cisco's expense.
Cisco shares have been under pressure these last several months. This stock was over $34 a share in November. But analysts do think the company is approaching bottom, as far as sluggish tech spending is concerned, and could indeed be poised for what some call a "re-acceleration" of revenue six months from now. Without full year guidance however, investors will be forced to read the tea leaves -- and digest more colorful adjectives about near- and long-term prospects at the company -- as to whether now is a good time to get back into Cisco, or whether they ought to still play the waiting game.
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