Cisco Tries to Shake the Sand From its Gear
November 13, 2013 Leave a comment
Cisco Tries to Shake the Sand From its Gear
DAN GALLAGHER
Updated Nov. 12, 2013 8:35 p.m. ET
Cisco Systems Inc. CSCO +1.22% is staring down a long track with plenty of hurdles. Fortunately, the first bar is pretty low. Wall Street expects Cisco on Wednesday to report adjusted earnings of 51 cents a share for its fiscal first quarter and revenue of $12.35 billion. That would compare with adjusted earnings of 48 cents a share a year earlier on revenue of $11.9 billion.Such anemic growth would mark Cisco’s lowest year-over-year rise for both earnings and revenue in at least two years. It also would represent the low end of Cisco’s own forecasts from its last quarterly report, a downbeat outlook that helped drive a more than 11% fall in its shares over the past three months.
Although expectations are muted, Cisco isn’t assured of easily beating them—the latest quarter ended Oct. 26 included the two-week federal government shutdown. Cisco derives about 10% of its revenue from the U.S. government, according to ISI Group. Also, Cisco is laying off 4,000 workers, about 5% of its global workforce, and expects to incur about half of the related costs in the recently ended quarter.
Longer term, Cisco remains challenged by many of the same trends, such as a move to cloud computing, that threaten other, older-generation technology giants such as International Business Machines Corp. IBM +0.10% , Oracle Corp.ORCL +0.96% and Hewlett-Packard Co.HPQ -0.49% And while the growth of cloud computing would seem a natural driver for Cisco’s products, many of the biggest buyers—Amazon.com Inc., AMZN -1.37% Google Inc. GOOG +0.12% and Facebook Inc.FB +0.88% —custom build their own gear, reducing a potential source of revenue.
Cisco has made some aggressive moves of late to get ahead of the technology curve. Last week, it announced the launch of a new family of products that employs software-defined-networking technology, designed to make large networks more flexible at a lower cost. While this has it headed in the right direction, the payoff remains uncertain.
Even so, much of the uncertainty around Cisco’s long-term prospects already is baked into the stock. It trades at an undemanding price to estimated next 12 months’ earnings of around 11.1 times, below its average for the past five years of 11.8 times.
At that level, and with its outlook already lowered, Cisco is less likely to trip up investors
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