Cisco is Zen-like about earnings

Cisco Systems' fourth-quarter earnings are on track, and there is a "sense of calm at the company" because it doesn't have to sprint to meet estimates, according to a report from UBS Warburg.

UBS analyst Nikos Theodosopoulos has upgraded Cisco shares to a "buy" from a "hold" and raised his price target to $24 from $20. "Based on our channel checks, we believe Cisco is not going to miss consensus expectations for the July ending quarter," he wrote in a research note. "Distributors and salespeople indicate that there has been no big sales push during the final two weeks of the quarter."

Cisco is expected to report earnings of two cents a share, according to First Call, for its fourth quarter on revenue of $4.35bn.

The upgrade of Cisco comes just days after another Wall Street brokerage firm, Salomon Smith Barney, said in an internal memo that the networking giant is placing orders and its contract equipment manufacturers. Cisco wasn't immediately available for comment.

The consensus view on Wall Street is that Cisco's business has stabilised and slightly improved in some areas. In May, Cisco took a $2.25bn inventory write-off and posted a net loss.

According to Theodosopoulos, Cisco's enterprise market has recovered slightly and its metro-optical products appear "poised for a rebound." And recent earnings reports from Sun Microsystems and Extreme Networks illustrate the US market may be improving.

But Theodosopoulos said Cisco still faces a tough market. He added that telecommunications capital spending isn't expected to rebound until the second half of 2002, if not 2003, and Cisco is likely to see "more pain" for the company's cable and digital-subscriber line products.

He also said that the biggest question for long-term investors would be Cisco's growth rate, which Theodosopoulos estimated to be about 20 percent. Cisco executives continue to suggest long-term growth of 30 to 50 percent.

Overall, however, Theodosopoulos said Cisco is in a better financial position than rivals such as Nortel Networks and Lucent Technologies. Cisco has $17bn in cash and is likely to continue to acquire leading niche players in the telecommunications market.

"While we are not suggesting any such deals are imminent (and in fact we do not think Cisco will make any large acquisitions until they show the Street they have stabilised their business and stock price), our point is that the financial flexibility is there," he said.

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