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Cisco Earnings Preview: What Wall Street's Saying

NEW YORK (TheStreet) -- Cisco (CSCO - Get Report) reports its second-quarter results after market close on Wednesday with investors eager to see whether the networking giant can bounce back after a weaker-than-expected first quarter.

Weighed down by weakness in emerging markets and the challenge of managing through new product cycles in the service provider space, Cisco's first-quarter sales missed analysts' forecasst.

Despite these challenges, however, there are still plenty of Cisco buy ratings on Wall Street, and the company's long-term free-cash-flow growth and margin expansion have been cited as positives. Rival Juniper's (JNPR) stronger-than-expected fiscal fourth-quarter results last month may also bode well, although EMC (EMC), another major tech infrastructure player, recently saw its shares slip on weak guidance and IBM (IBM) missed Wall Street's revenue forecast in its recent fiscal fourth quarter. 

During its fiscal first quarter, Cisco's cash flows from operations were $2.6 billion, up slightly from $2.5 billion in the prior year period. The company's first-quarter gross margin was 63%, up from 62.7% in the same period last year.

Cisco is also ramping up its efforts around Software-Defined Networks (SDN), an emerging set of techniques for managing network flows through software.

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Analysts surveyed by Thomson Reuters expect Cisco to report earnings of 46 cents a share on revenue of $11.03 billion, down from earnings of 51 cents a share on revenue of $12.1 billion in the year-ago period.

The company's shares have slipped 4% over the last three months, but have rallied slightly heading into the second-quarter results.

Here's what analysts have to say about Cisco's forthcoming second-quarter results:

Cantor Fitzgerald analyst Brian White (Buy, $26)

"Back in November, Cisco served up the weakest outlook in our coverage universe and the company cut its long-term growth targets at its analyst meeting in December. As such, we believe near-term expectations around Cisco have been reset, and we expect the company to remain in 'transition mode' for the remainder of FY:14."

"We expect emerging market demand to remain challenged in the near-term and the service provider weakness appears to be more of a Cisco-specific issue with a troubled set-top portfolio, combined with a router portfolio that is undergoing a refresh. However, we believe platforms such as the Nexus 9000 with ACI, Carrier Routing System-X and Network Convergence System could start to benefit Cisco in FY:15."

ISI Group analyst Brian Marshall (Neutral)

"We anticipate many of the main drivers of recent weakness (e.g., emerging markets orders, set-top boxes [STBs] and product transitions) will persist into the Apr-14 quarter before showing signs of improvement. While we applaud CSCO's departure in recent years from low-margin businesses such as STBs, home networking, etc., we believe this lever for gross margin stability is not sustainable long-term and look for growth in software-oriented services to help preserve CSCO's business model. Despite concerns over growth and margins, we have actually become slightly more positive on CSCO in recent quarters due to improved positioning for technology transitions such as software-defined networking (SDN)."

Sterne Agee analyst Alex Kurtz (Buy, $25)

"Expecting in-line results with improved tone on developed markets After last quarter's severe reset on guidance of down 8-10% Q/Q on January revenue, investor expectations remain modest with most viewing the story as now a GDP grower with some optionality into Storage, Security, and Wireless as new growth vectors (about 15% of total revenue). With the stock at 8x CY2015 adjusted EPS, we see downside protection to $21 and manageable consensus product growth into FY2015 of ~3% (vs. EMC's commentary of ~2% Y/Y growth for CY2015). Key metric: BRIC countries' growth of down ~20% last quarter - the market is expecting similar results given peer performance."

-- Written by James Rogers in New York.

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