Cisco's Q3: Mixed demand picture ahead

Cisco's rivals have stumbled with their quarterly financials, but the networking giant appears to be safe with its quarter.

Cisco Systems' fiscal third quarter should be on target with estimates, but the company is likely to provide a mixed outlook regarding enterprise demand.

Wall Street is looking for earnings of 47 cents a share on revenue of $11.57 billion.

Here's the crib sheet on Cisco's quarter:

Revenue growth: Given a mixed economic picture, Cisco is expected to struggle with revenue growth for the foreseeable future. Cisco, however, has been focused on managing expenses and that move should keep earnings and margins in line with expectations. HP has also been less aggressive with its switch pricing.

Networking demand: JMP Securities analyst Erik Suppiger said demand was mixed for networking gear. He said:

We believe overall demand for enterprise switching was slow, but Cisco is effectively defending its share and possibly extending its share in the data center. In addition, we believe Cisco continued to gain share in the carrier routing market, but overall spending in the sector was seasonally slow. We also believe Cisco's service provider video business continues to gain share as carriers move a

way from Motorola in anticipation of its upcoming acquisition by Google. Our checks also suggest public sector spending remained a challenge.

Stifel Nicolaus analyst Sanjiv Wadhwani noted that the quarters from Juniper, Riverbed and Polycom have been disappointing. Cisco could also stumble.

Can servers step up? Cisco's UCS effort has been gaining traction and the company could offset networking weakness with server growth. Barclays analyst Jeff Kvaal said in a research note: "Cisco’s success with UCS suggests it may be better viewed as a large cap IT story with plays into servers and possibly ultimately storage."

Europe: Analysts say that Cisco demand in Europe held up pretty well in the quarter. Service provider demand in Europe has been "resilient," said analysts.

Future growth: Cisco's biggest conundrum is that the growth is in new markets such as wide area networking (WAN) optimization and security are the company's weakest areas. Could Cisco buy its way into a new market?


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