Sunday, January 31, 2010

Cisco Systems Inc.(NASDAQ: CSCO): Q2 Earnings Preview 2010

Cisco Systems Inc.(NASDAQ: CSCO), the world's largest networking equipment maker, is scheduled to release its fiscal second-quarter 2010 financial results after the closing bell on Wednesday, February 3, 2009. Analysts, on average, expect the company to report earnings of 35 cents a share on sales of $9.40 billion. In the year ago period, the company reported earnings of 32 cents per share on sales of $9.09 billion.

Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol-based networking and other products to the communications and IT industry worldwide. The company is often considered as a technology-industry bellwether as it dominates the market for routers and switches. With the U.S. economy returning to growth path last quarter following four consecutive quarters of declines, technology spending by corporates is poised to increase.

In the preceding fiscal first quarter, the San Jose, Calfornia-based company's profit fell 19% to $1.8 billion or $0.30 per share, compared to $2.2 billion or $0.37 per share in the comparable quarter last year. On an adjusted basis, the company earned $2.1 billion or $0.36 per share, compared to $2.5 billion or $0.42 per share in the prior year quarter. Revenue dropped 12.7% to $9.02 billion from $10.33 billion in the same quarter last year. Analysts, on average, expected the company to earn $0.31 per share on revenue of $8.74 billion.

Gross margin for the first quarter improved to 65.3% from 64.7% in the year-ago quarter and 63.9% in the previous quarter.

For fiscal second quarter, the networking company anticipates total revenue to be up approximately 1% to 4% year over year. From a sequential perspective, the company expects to see approximately 2% to 5% growth. Total gross margin in Q2 will be approximately 64% to 65%. Regarding cash flow from operations, Cisco expects to generate $1.8 billion to $2.1 billion during the second quarter.

Cisco is likely to benefit from a rebound in corporate technology spending. According to technology research firm Gartner Inc., worldwide IT spending is expected to increase 4.6 percent to $3.4 trillion in 2010, on the back of an economic recovery and a declining dollar.

Early this month, Cisco Systems said that it will restructure Asia Pacific and Japan operations to support its investments and growth plans, and accordingly it will create a separate Greater China Theater. The restructuring will enable a more focused strategy and investment of resources to countries within the region. Japan, Greater China and Asia Pacific Theaters comprise about 15% of Cisco's worldwide revenue.

Last month, the technology bellwether completed the acquisition of Starent Networks Corp., a supplier of Internet Protocol-based mobile infrastructure solutions. Cisco expects the acquisition to be dilutive to non-GAAP earnings in fiscal years 2010 and 2011 and accretive to non-GAAP earnings in fiscal 2012. It also completed the acquisition of ScanSafe, Inc., a povider of software-as-a-service Web security solutions, based in London and San Francisco.

The company's stock currently trades at a forward P/E (fye 25-Jul-11) of 13.82 and PEG Ratio (5 yr expected) of 1.37. In terms of stock performance, Cisco shares have rallied 37 percent over the past year.

Full Disclosure: None.
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