Cisco Systems, Inc.
) is scheduled to announce its first quarter fiscal 2013 results
after the closing bell on November 13, 2012, and we notice a few
downward movements in analyst estimates so far.
Fourth Quarter Overview
Cisco's fourth quarter 2012 earnings (excluding one-time items
and including stock-based compensation) beat the Zacks Consensus
Estimate by 3 cents or 7.8%.
Revenue saw 4.4% year-over-year growth, driven by increases in
both product and service revenues. Orders saw a 2% year-over-year
increase compared with a 4% increase in the third quarter,
similar to the trend in the last quarter and indicating slower
Margins decreased sequentially as well as from the year-ago
quarter due to unfavorable mix and weak pricing. Also higher
warranty expense pushed up the total manufacturing cost,
negatively impacting margins.
First Quarter Guidance
For the first quarter, Cisco expects revenue to be flat to
down 1.8% on a sequential basis and increase 2-4% on a
year-over-year basis. Non-GAAP operating margin is expected to be
26.5-27.5% of revenue and non-GAAP EPS is expected to be 45 to 47
(Detailed earnings results can be viewed in the blog titled:
Cisco Orders Driving Shares
Agreement of Analysts
Out of the 13 and 14 analysts providing estimates for the
first quarter and fiscal 2013, 2 analysts made downward revisions
in the last 30 days.
The majority of analysts expect the company to report its
first quarter revenue below the consensus estimate of $11.8
billion. Given the continuing problems in southern Europe and the
uncertainty in Cisco's switching and routing divisions over the
last few years, the analysts do not expect an outperformance.
They expect limited near-term spending and continued weakness in
the public sector.
However, they expect earnings to come in line with the
consensus estimate of $0.46 per share, owing to modest gross
margin upside from favorable mix, cost cut initiatives, and the
recent NDS acquisition. They expect the company to announce more
restructuring activities, further asset sales and new products,
which should all be accretive to its profits.
The majority of the analysts expect Cisco to issue a
conservative second quarter guidance due to continued signs of a
slow global capex environment.
Magnitude of Estimate Revisions
In the past 30 days, the Zacks Consensus Estimate remained
unchanged for the first quarter as well as for fiscal 2013 at 41
cents and $1.72 per share, respectively.
Over the 90-day period, the Zacks Consensus Estimate was up by
a penny for the first quarter and by 3 cents per share for fiscal
We believe that macro headwinds, a tight spending environment
and strong competition could limit first quarter revenue
We believe a conservative guidance by Cisco's peers including
Juniper Networks, Inc.
F5 Networks, Inc.
), also reinforce the view that the macro environment will
continue to be challenging in the near term.
However, the company's restructuring activities, focus on new
products, and pursuance of growth opportunities in international
markets could be potential catalysts going forward.
We think the real challenge facing Cisco right now is the
possibility of material share losses, as public sector spending
shrinks or shifts away from its technology. Hence, the company's
ability to gain share with new products in growth areas will be
the ultimate determinant of its success, in our view.
Cisco is no doubt the networking giant. But competitors such
Hewlett Packard Company
) through its 3Com acquisition and F5 Networks are slowly picking
up market share.
Currently, Cisco has a Zacks #4 Rank, implying a short-term
ALCATEL ADS (ALU): Free Stock Analysis Report
CISCO SYSTEMS (CSCO): Free Stock Analysis
F5 NETWORKS INC (FFIV): Free Stock Analysis
HEWLETT PACKARD (HPQ): Free Stock Analysis
JUNIPER NETWRKS (JNPR): Free Stock Analysis
To read this article on Zacks.com click here.