Cisco Earnings on Tap: Good Vibes for the 'Catalyst'

Networking giant Cisco Systems (CSCO) is set to release fiscal Q3 earnings this afternoon, after the closing bell, and analysts have been tuning up their models.

The Street is, on average, projecting revenue of $12.43 billion, and earnings per share of 65 cents, excluding some costs.

The attitude the past weak heading toward this conference call is fairly upbeat.

R.W. Baird analyst Jayson Noland's conversations with over 65 "channel partners," companies that sell as much as $10 billion of Cisco gear annually, reveal "lead times" for its " Catalyst 9000 " switches, the wait to get one, have been stretching out, which he thinks is "a function of demand as opposed to a supply-chain constraint."

The same group of resellers expect this quarter to be similarly upbeat.

Noland has an Outperform rating on the shares and a $51 price target.

As I noted on Monday, Cowen & Co.'s Paul Silverstein is hearing similarly good vibes as he talks to people in industry, and it's because Cisco is improving how it talks to customers.

Silverstein, who has an Outperform rating on Cisco shares, wrote that Cisco "is meaningfully improving its competitive position in terms of both its approach to its customers and its solutions offerings."

"Contacts at each of the companies we spoke with noted relatively recent (i.e., over the past ~ 12 months) significant improvement in the way CSCO was addressing them as a customer, in the technology/solutions that CSCO had to offer, and in CSCO's flexibility in structuring its solutions offer."

But not everyone is so upbeat. Tim Long with BMO Capital this morning reiterated a Market Perform rating on the shares, and a $43 price target. The problem is Cisco's shift to more and more software revenue, less hardware. It's "continues to play out, but "the shift is progressing slower than expected, even with the addition of the subscription-based Catalyst 9K campus switch."

The contribution of the Catalyst 9000 is accelerating, Long acknowledges, but he's concerned because it "still remains small and the recent introduction of Arista's campus switch portfolio could negatively impact the acceleration," referring to the announcement last week by Arista Networks (ANET) that it will begin selling a new line of network switches to challenge Cisco's dominance in corporate networks.

Arista's push into Cisco's campus turf is the subject of a story I wrote for this week's Barron's print magazine.

Cisco shares are down 28 cents, or 0.6%, at $45.20.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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