Three months ago, Cisco CEO John Chambers scared the technology industry with his prediction of lumpy demand and comments about "some softness" in enterprise spending from U.S. customers. What does he do for an encore?
We'll soon find out as Cisco reports its fiscal second quarter earnings on Wednesday. Cisco is expected to report earnings of 38 cents a share for its January quarter on revenue of $9.79 billion.
But no one cares--Cisco will top estimates and hit its targets. It's the outlook we want to hear about. And even if Cisco is upbeat it may still be taken out to the woodshed--especially if Chambers mentions anything-less-than-stellar demand like he did in the fiscal first quarter.
Analysts expect an ok quarter from Cisco, but nothing stellar. BMO Capital Markets analyst Paras Bhargava said in a research note that the Cisco's third quarter results were helped by big growth in emerging markets and the service provider unit. For instance, Cisco won a deal with the Indian Air Force that fueled growth. "Indian state government spending on networking is just beginning and could easily be a multi billion dollar multi-year project," said Bhargava.
Bhargava argues that the big picture still looks good for Cisco. The networking giant will remain No. 1 in its market and is diversified abroad.
All of that is true, but the short-term outlook is critical.
Pacific Crest analyst Tim Daubenspeck said Cisco's quarter "should be fine," but enterprises likely pushed out orders. "We believe the U.S. enterprise business was progressing well through mid-January, when economic conditions caused an order push-out," wrote Daubenspeck in an earnings preview. "We believe there was a late-quarter effort within the U.S. enterprise sales force to pull in orders."
Meanwhile, Cisco's book-to-bill ratio--an indicator of order demand--is likely to fall below 1. Analysts think that Cisco will continue to forecast revenue growth of 13 percent to 16 percent in fiscal 2008, but expect a lot of scrutiny of all the smaller indicators.
In general, Cisco isn't expected to show accelerating growth. It continues to benefit from a weak dollar and the U.S. enterprise business is likely to be anemic. The big question is whether those results will scare folks like they did the last time around.