How to go, Cisco?

February 5, 2001: 2:09 p.m. ET

Street eagerly anticipates quarterly results, growth forecast

NEW YORK (CNNfn) - When it comes to living up to Wall Street's earnings expectations, very few companies can match Cisco Systems' performance.

For the past 11 years, Cisco has consistently either met or exceeded quarterly earnings expectations. And while they do not expect the company to break that streak when it reports its latest results Tuesday, many analysts and investors are expecting Cisco to back off its aggressive growth forecasts.

Analysts are generally expecting Cisco (CSCO: Research, Estimates), the No. 1 supplier of data networking equipment, to log a profit of 19 cents per share for the quarter, its fiscal second, on sales of about $7.2 billion, according to a survey conducted by First Call, a research firm that tracks such estimates.

And those estimates have remained firm, even after John Chambers, Cisco's chief executive, began making cautious comments in recent weeks and Cisco competitors Lucent Technologies (LU: Research, Estimates) and Nortel Networks (NT: Research, Estimates) reduced their revenue and earnings forecasts, blaming decreased spending among their telecommunications service provider customers.

Late last month, Chambers told the attendees of the World Economic Forum that Cisco's business in January had been "a little bit slow," saying that a slump in the economy had prompted customers to reduce their capital spending.

Those remarks came just weeks after Chambers at an investor conference characterized the company's quarter as "a little bit more challenging" than he had previously expected.

Both times, Chambers said he expects to see "a wider range of estimates" from analysts, which many have interpreted as meaning a lower range. Still, he did not back off the annual revenue-growth target of between 50 percent and 60 percent, which he reiterated in early December.

But the recent economic slump and a falloff in demand for Cisco's products has raised some doubts among some industry observers about the company's ability to achieve that aggressive goal.

"I think Cisco can definitely meet [second-quarter] estimates," said Stephen Kamman, an analyst who tracks Cisco for CIBC World Markets. "You've got to give the company a ton of respect for their ability to manage their internal business on a day-by-day basis."

The real question, said Kamman, who last month downgraded Cisco's shares to "hold" from "buy," is how Cisco plans to respond to the deteriorating market conditions.



	My gut feeling is they'll probably say there will be low visibility in the near term, but things will come back in the third or fourth quarter of calendar 2001.



	Stephen Kamman CIBC World Markets

"My gut feeling is they'll probably say there will be low visibility in the near term, but things will come back in the third or fourth quarter of calendar 2001," Kamman said.

Merrill Lynch's Michael Ching threw up a red flag on Cisco even earlier, downgrading his rating on the stock to "accumulate" from "buy" in late December, pointing to a deceleration in corporate information technology spending and growing price pressure in the data networking equipment market.

Cisco's stock has tumbled in tandem with Chambers' remarks and the mounting concerns among analysts. At Friday's close, its shares had fallen 31.9 percent from $52.13 on Dec. 5.

With very little economic data slated for release this week and the bulk of corporate earnings already reported, the Street will be eyeing Cisco's results very carefully.

Cisco is the largest company listed on Nasdaq, in terms of its market capitalization, and the Nasdaq composite index has been moving lower since last Thursday.

Linda Jay, a trader at RPM Specialists, told CNNfn's Market Call that Cisco's numbers will be the key market event that will set the tone on Nasdaq for the remainder of the week.

"Cisco will be a big number, particularly for the Nasdaq," Jay said. "The Nasdaq needs a catalyst, and maybe it comes in the way of Cisco tomorrow, if they don't disappoint in their earnings."