Cisco Beats the Street

CSCO's guidance for the second quarter is for revenue to be up 1-4% on the year, or in the $9.18-$9.45 billion range, with pro forma gross margin in the 64-65% neighborhood. Opex should be 37.5-38.5% of revenue, with other income of about $25 million and a tax rate of 22%. This should translate into pro forma EPS of $0.33-$0.35. Current street consensus is for revenue of $8.96 billion and pro forma EPS of $0.32.

CSCO CEO John Chambers was downright giddy on the conference call. He believes that fiscal Q3 2009 was the bottom and that the recovery is underway. In order to take advantage of that recovery, CSCO will be selectively adding to staff in fiscal Q2 and beyond. Management is seeing signs that some Enterprise customers no longer have their foot on the brakes, even if they have yet to put it on the accelerator.

The company has seen the supply chain tighten and some lead times begin to extend. However, it has taken the appropriate steps to ensure that it has access to critical components going forward.

Despite the enthusiasm, management made a concerted effort to dissuade The Street from bumping up its models. Yes, they're contradicting themselves, but they claim to be doing so simply to be cautious.

CSCO had a very good quarter and sees much more than just light at the end of the tunnel; it sees a new dawn. While that may be correct, CSCO's a lone voice on the subject for now.

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At the time of publication, Faulkner held no positions in the stocks mentioned.

Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.