Cisco in the Hot Seat as Investors Await Earnings Details
Today the networking giant Cisco Systems (NASDAQ:CSCO) will release its quarterly earnings report, and in the process many analysts are hoping that it will give some indication as to the stability of the company’s turnaround. For the past few years, Cisco has consistently delivered on results, but has delivered poor outlooks quarter after quarter.
However, the company recently underwent a restructuring, cutting 6,500 jobs, eliminating most of its consumer-based products, and selling its manufacturing operations in Mexico to Chinese company Foxconn. As a result of all this restructuring, the company has altered its expectations for long-term growth. Now it is time for the company to prove that all those changes are actually having the intended effect and helping the company to grow.
At the moment, there are reasons to be optimistic. Cisco has launched a new ad campaign, and has been aggressive in its attempts to break into new markets like cloud computing while cutting its failed consumer products. By all appearances, Cisco seems to be refocused and re-energized. Analysts are expecting profits of 43 cents a share on total sales of $11.23 billion, though Sanjiv Wadhwani of Stifel Nicolaus expects slightly higher numbers.
While information technology spending is down, router sales remain strong against competitors like Juniper (NYSE:JNPR), and sales of switching products are doing better than expected. The U.S. and Europe, surprisingly, have been Cisco’s best geographic areas, though sales have been down in countries like Italy and Greece as they face of austerity and excessive debt.
Wadhwani expects set-top boxes to be an area of weakness this after the flooding in Thailand last year caused a hard drive shortage, and the key metric of gross margins may be down due to large quantities of routers sold to China at aggressive, and therefore low, prices.
During the quarter, Cisco announced that its cloud computing hardware product — the Unified Computing System — reached 10,000 customers and grew into a $1 billion business, a noteworthy improvement given expectations for growth in crowd computing over the next few years.
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