NEW YORK — Cisco Systems Inc. is expected to post higher quarterly sales when it reports on August 8, as companies upgraded their communications networks. But analysts say that outlook is clouded by an economic slowdown and mergers among rivals.
Analysts also said that Cisco sales were likely boosted as companies upgraded their networks to new Internet protocol (IP), or Web-based, telephone systems, and adopted wireless connections to link computers, servers and printers within offices.
Wall Street, on average, expects Cisco’s fiscal fourth-quarter revenue to rise 20 percent to $7.92 billion from $6.58 billion a year ago, according to Reuters Estimates. The quarter ended July 29.
The average estimate for profits before special items was $1.8 billion, or 28 cents per share, compared with $1.6 billion, or 25 cents per share, in the year-ago quarter.
The results are being driven by corporate IT upgrades, said Kenneth Muth, analyst at Robert W. Baird & Co.
But Muth recently cut his rating on Cisco stock to neutral from outperform, and lowered his price target to $19 from $25, saying Cisco CEO John Chambers could give a conservative outlook for the next fiscal year.
“Cisco has a very good product portfolio. It’s more of an economic issue ahead. Chambers will probably be tempered in his outlook,” Muth said.
Recent economic data point to slower business activity, but with inflation still trending upwards, analysts say there is a chance the Federal Reserve may raise rates again when it meets on August 8, the same day as Cisco’s earnings announcement.
Analysts said Cisco also needs to watch out for smaller rival Juniper Networks, which announced a rise in quarterly revenue last month.
“Giants can be caught asleep at the wheel, especially when they are lying on extremely attractive margins,” said Rochdale Securities analyst Daan Coster. He upgraded Cisco to hold from sell earlier this week but kept a $16 target price on its shares.
Cisco shares have fallen about 10 percent over the past 12 months, while Juniper shares have fallen about 45 percent.
Cisco’s core business is routers and switchers, which direct traffic on the Internet. Major clients are phone carriers like Verizon Communications Inc. and companies such as Boeing Co. and Merrill Lynch.
It has been diversifying and moving into markets that are closer to consumers, through moves like its purchase of cable set-top box maker Scientific Atlanta.
Analysts said that acquisition in February may contribute more to fourth-quarter sales than Cisco’s forecast of $500 million, as cable providers spend more to compete with phone companies, but it could dent margins in the short term.
Including special items, such as stock-based compensation, analysts forecast Cisco’s net profit to dip to 23 cents a share from 24 cents per share a year ago.
As for its outlook, in addition to the prospect of weaker corporate spending, Cisco also faces competition from rivals that are merging to offer more smoothly integrated wired and wireless services, analysts said.
For instance, France’s Alcatel is set to acquire smaller U.S. rival Lucent Technologies Inc. to create a company with annual revenue of $25 billion, roughly matching Cisco’s.
Siemens and Nokia also plan to merge their telecommunications network equipment units, while Microsoft Corp. and Canada’s Nortel have tied up on business phone systems.
Fuente: CNN, con información de Reuters