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Cisco 3Q Seen Up, Wall St. Eyes Guidance
Monday May 9, 2:28 pm ET
Cisco Third-Quarter Profit Seen Up Despite Difficult Period, Analysts on Lookout for Projections


NEW YORK (AP) -- Cisco Systems Inc. on Tuesday is expected to unveil third-quarter profit that surpassed Wall Street expectations despite what analysts believe to have been a difficult period for the network equipment maker.
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The San Jose, Calif.-based company is expected to report earnings of 22 cents per share on revenue of $6.16 billion, according to analysts surveyed by Thomson Financial. Last year, the company reported earnings of 19 cents per share on $5.62 billion a year earlier.

Cisco, which makes equipment such as wireless routers and IP telephony products, will likely tell investors that the third quarter of the fiscal was once again one of its more challenging periods. Analysts at JPMorgan Chase and Banc of America said the company's overall sales weakened in March, but began to recover in April.

But, more importantly, Cisco's fourth-quarter outlook will be a key litmus test in gauging the company's performance for the rest of calendar 2005. The company projected revenue for the period to grow 2 percent, but did not give explicit earnings per share guidance.

"The key to the quarter is the guidance," said JPMorgan Chase analyst Ehud Gelblum, who expects Cisco to talk abut pricing pressure for its switching products due to "increasing competition, a tepid demand environment, and a mix shift to lower margin advanced technology products."

During the last month of the third-quarter, a check of major Cisco customers by Merrill Lynch found that many were upgrading their data networks. Investors will also be watching for continued strength from Cisco's Linksys business, which makes routers that connect computers wirelessly to the Internet.

Cisco also made moves during the quarter to expand its presence in Internet telephony, which enables Internet users to make telephone calls from their computers. Last month, Cisco agreed to buy privately held Sipura Technology Inc. in a $68 million deal.

The takeover is part of a growing strategy by Cisco to move more toward home networking equipment, like the products made by Linksys. Last year, Cisco said that business was worth nearly $1 billion a year.

"Bookings trends were inline as enterprise systems (switches/routers) likely had an inline to slightly weaker quarter, offset by strength in carrier business, supported by the recovery in capital expenditures that began during the first-quarter earnings results of carriers," said Merrill Lynch analyst Tal Liani in a report.

Cisco could use some good news when it reports earnings after the markets close to help its sagging stock price. Shares rose 19 cents to $18.21 in afternoon trading on the Nasdaq -- but they are still significantly lower than the 52-week high of $24.20 set in June.

The stock price is also well below price objectives set by analysts. Merrill Lynch expects the stock to rise to $22.75 during the next 12 months, while Banc of America Securities sees the stock at $24. Both rate Cisco at "Buy." JPMorgan, which rates Cisco at a "Neutral," did not have a price target.





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