Cisco Numbers Keep Plunging as Lehman Cuts Back

Cisco (CSCO) hasn't cut its profit forecast, but that's not stopping some people on Wall Street.

As signs of deterioration pile up in the form of customer bankruptcies, economic cooling and industrywide spending pullbacks, analysts have repeatedly trimmed their growth outlooks.

Lehman Brothers analyst Tim Luke became the latest to take a knife to Cisco's numbers when he told clients Tuesday that he was cutting his third-quarter earnings estimate to 5 cents a share, from 12 cents, due to what he called across-the-board weakness in sales. Luke is expected to release a report later Tuesday cutting Cisco's fiscal 2001 earnings estimate to 46 cents a share from 60 cents, and its fiscal 2002 number to 51 cents from 73.

Reversal Cisco's slide

At least one analyst was a little miffed by Cisco's silence on the issue of earnings guidance, saying it put Wall Street's equity research community in the untenable position of guessing at the closely watched networker's progress. CEO John Chambers has said sales continue to be soft two months into the current quarter, but the company hasn't offered specific guidance on sales and profit targets.

"This lowering numbers through the press with no hard, clear number commitments is an exercise in management cowardice," says one New York analyst who has a hold on the stock. "Sure, analysts should do their own forecasts, but managements need to have the courage to commit to tangible performance targets. Otherwise there's no accountability," says the analyst, who asked not to be named.

Slash and Burn

Cisco numbers have been repeatedly cut this quarter as Chambers has telegraphed sluggish sales on what seems to be a week-by-week basis. Credit Suisse First Boston slashed its projections for Cisco earlier this month, while UBS PaineWebber twice this month snipped sales and profit expectations.

As TheStreet.com noted in a recent Options Buzz item, some investors appeared ready Tuesday to participate in the long-awaited Cisco bounce. Cisco shares were nearing a 52-week low of $17.50 early Tuesday before rallying $1.31, or 7% to $18.81. Cisco shares closed ahead by 25 cents to $18.12.

Cisco is sitting on a mountain of inventory as it faces a cash-strapped telecom gear market populated by price-cutting competitors facing a bounty of nearly new gear. If AT&T's (T) purchase of NorthPoint's gear is any indication, distressed network assets and data gear are selling for around 30 cents on the dollar.

Lehman's Luke said signs of a rebound were still a ways off. He told clients that the bulk of Cisco's business -- sales of office data networking equipment account for some 60% of overall revenue -- would spring back in 2002. But Luke cautions that even if Cisco pulls out of the slide next year, it will resume earnings growth at a far more modest pace -- 15%, the analyst expects, down from 47% last year.

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