|
Cisco due, stock falls
|
 |
August 7, 2001: 5:42 a.m. ET
Tech bellwether's profits seen falling to 2 cents a share from 16 cents
By Staff Writer Richard Richtmyer
|
NEW YORK (CNNfn) - Cisco Systems Inc. is expected to show a huge decline in earnings when the maker of Internet equipment reports after the market closes Tuesday.
Shares of Cisco slid 2.5 percent Monday as investors awaited the tech bellwether's fiscal fourth-quarter and full-year results.
Cisco (CSCO: Research, Estimates), one of the biggest makers of Internet gear, traditionally has targeted its products at telecommunications and Internet service providers as well as large corporations. Capital spending in both those markets has plunged this year.
Wall Street is expecting a similar drop in Cisco's results. Analysts expect the San Jose, Calif.-based company to earn 2 cents a share for its fourth quarter excluding one-time items, down from 16 cents a share a year earlier and a penny below its per-share profits for its third quarter.
The company, which controls more than two-thirds of the global market for the routers and switches that link computer networks and power the Internet, is one of the most highly valued and closely watched on Wall Street. In recent years, as the dot.com balloon inflated, so too did Cisco's growth rate, which had reached as high as 70 percent.
But since the U.S. economy has stalled and the dot.com balloon burst, the once mighty Cisco has found itself in the company of many other high-tech outfits: ratcheting down its financial targets, writing off excess inventory and implementing cost-cutting measures, including job cuts, in a bid to stay profitable.
After the company's third quarter results, Cisco executives said they expected the company's fourth-quarter revenue to be flat-to-down 10 percent from the third quarter's $4.73 billion. By First Call's count, the Street generally is expecting to see revenue of $4.34 billion, suggesting an 8 percent decline, although individual estimates run as high as $4.54 billion.
More important than the numbers they report for the fourth quarter, though, will be the signals Cisco executives send during their quarterly teleconference with analysts after the earnings news is released.
During the third-quarter call, John Chambers, Cisco's CEO, said he was seeing "a number of positive indications" that the downturn in capital spending in its end markets could reach a bottom in the next one-to-two quarters.
However, he qualified that statement by saying that expectation was based on assumptions that the capital spending slowdown would stabilize in regions outside the United States; the Federal Reserve would continue to aggressively reduce interest rates; and "the U.S. government will enact meaningful tax reductions retroactive to January."
And despite the slowdown, Cisco executives also have stood by their traditional forecast for annual growth ranging between 30 percent and 50 percent in countries with healthy economies.
Analysts' opinions on Cisco have been mixed recently, and some are expecting executives to rein in that growth forecast during Tuesday's call.
Dresdner Kleinwort analyst Ariane Mahler last week downgraded Cisco to "reduce" from "hold," citing further signs of weakness in its business. Mahler said Cisco's stock has held up, or even increased in recent weeks, on expectations of a recovery in its business during the second half of 2002.
Such expectations are "not based on fundamental analysis, but rather on the hope that Fed rate cuts will soon have a positive impact on the economy, and that enterprises will start spending again on (information technology) communications towards the end of calendar 2002," Mahler said.
Click here to check on networking stocks
Mahler said there have been clear signs of increased weakness in information technology and communication equipment orders, with little prospects for a pickup in orders in the latter part of the year.
Credit Suisse First Boston analyst Lissa Bogaty, who has a "buy" rating on Cisco's shares, stands somewhere in the middle. Last Thursday, she said that while she thinks the tone of Cisco's teleconference will be less somber, she also expects management to continue to be cautious and possibly back off its traditional forecast for growth ranging between 30 percent and 50 percent in countries with healthy economies.
Meanwhile, Salomon Smith Barney analyst B. Alexander Henderson is more optimistic. He said he expects Cisco to report revenue in the midpoint of its guidance range and that executives are likely to issue a relatively upbeat outlook for the future.
"While we expected guidance to be tinged with caution, we also expect the outlook to be generally upbeat," Henderson wrote in a research note, adding that he anticipates a spike in Cisco's shares following the earnings release and management's teleconference. Henderson has a "buy" rating on Cisco's shares and a price target of $30. 
|
|
|
|
|
|
Cisco
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
