Cisco looks into the abyss

NEW YORK (Fortune) -- Cisco takes the stage Wednesday as anxious tech watchers brace for another update on the declining health of IT spending.

With big shops like Intel (INTC, Fortune 500), Apple (AAPL, Fortune 500), and Microsoft (MSFT, Fortune 500) already forecasting a sales slowdown as we head into a tech recession, Cisco's (CSCO, Fortune 500) message after the market closes Wednesday is not likely to be very sunny.

Results for the quarter ended last month are expected to be solid, but several analysts have cut their current quarter sales outlook on Cisco by nearly half, in anticipation of the company's downward revision.

"While we expect an inline quarter, we believe Cisco will meaningfully lower its fiscal second quarter sales guidance to around 3% year-over-year growth from the 7.5% to 9.5% range provided in August, due to the significant deterioration in its end markets," writes Goldman Sachs analyst Simona Jankowski in an earnings preview Monday.

Signs of a economic slowdown aren't exactly hard to find, however the unanswered question is how bad will it be and for how long. If investors are any gauge, market optimism has all but vanished. Cisco shares hit a five-year low of $15.90 last week. The stock - while up 5% Tuesday - is down 33% for the year.

As a supplier of Internet gear and computer networking systems, Cisco has a broad reach into markets across the globe. And given its position as the dominant provider of data infrastructure, Cisco's view of tech spending trends, while not always accurate, commands a great deal of attention.

Analysts are looking for Cisco to report adjusted earnings of 39 cents a share, which is down a penny from the year-ago profit level. And sales are expected to be $10.3 billion, up from the $9.55 billion last year. Looking ahead, to the quarter ending in January, analysts expect Cisco to repeat the 39 cent pro forma profit performance on sales of $10.4 billion.

In August, Cisco sparked a small tech rally after reporting a solid fiscal fourth quarter and only guiding sales down slightly. The forecast turned out to be not nearly as dire as some had expected, thanks to a surge in orders from big U.S. businesses.

But trying to guess the degree of bad news can be difficult.

"While Cisco remains on solid footing, we do not believe the stock is a good place to hide during the downturn," writes JPMorgan analyst Ehud Gelblum, who is expecting Cisco to lower its current quarter year-over-year sales growth target to 3%.

Other observers were slightly more optimistic.

"We think that mid-single digit year-over-year growth rates are attainable even with a flat IT budget environment, as Cisco is exposed to attractive product categories and is in a position to take share from weaker competitors," Bernstein Research analyst Jeff Evenson wrote in a note Monday.