Cisco's third quarter: Time for a candid chat about execution
The new, more focused Cisco Systems makes its earnings debut on Wednesday as it takes a baby step to regaining credibility with investors.
Cisco's quarter was quite eventful. Following last quarter's miss, Cisco CEO John Chambers delivered a mea culpa, moved to streamline the company and killed off the Flip consumer camera. Much of the earnings conference call is likely to revolve around
Wall Street expects Cisco to report third quarter earnings of 37 cents a share on revenue of $10.86 billion.
So how has Cisco changed? The biggest news out of Cisco Tuesday was the acquisition it didn't make. Microsoft acquired Skype, which theoretically would have worked well in Cisco's business.
Instead of acquiring Skype, Cisco's big win was hiring David Yen to lead its server access and virtualization technology group. Yen was hired away from Juniper. In other words, Cisco isn't looking for a big bang, but working in the trenches to protect its core business. For Cisco, it's a bit of a change.
The good news for Cisco is that Wall Street isn't expecting much. Cisco is a work in progress that will have to show a few quarters of success. HP is clearly gunning for Cisco's core business. Analysts are skeptical about Cisco and even talking a breakup. A sampling of comments:
Morgan Stanley analyst Ehud Gelblum said:
As we’ve written several times, we continue to believe Cisco could be better off splitting itself into two or more pieces, each with different targets for growth and margin. While Cisco took strides resolving the internal issues facing the company in yesterday’s announcement, we continue to believe Cisco's primary troubles are more structural in nature and are best addressed through a break-up of the company.
Barclays analyst Jeffrey Kvaal said:
We anticipate clarity into plans to improve execution, including updated growth targets and opex plans. We believe retrenching to 5 core markets and streamlining of geographies/councils should allow tighter focus.
Stifel Nicolaus analyst Sanjiv Wadhwani said:
We expect this call to focus on a candid discussion about Cisco’s strategy going forward, what the company is doing right and what it needs to better in terms of execution. The company is already embarking on improving its operating model with the recently announced organizational changes, which we believe will eventually lead to headcount reductions. We expect to hear more about the efforts of COO Gary Moore on the earnings call. We also expect Cisco to revise guidance downward for the July quarter given the pressure it is facing in terms of pricing/margins, pressures on public sector spending and to account for various low-growth segments.
In other word, expectations for Cisco are low.
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