Cisco Met Expectations? That's Hogwash

I've read the headlines. "Cisco Hits Forecasts," said the Los Angeles Times. "Cisco's 4th Quarter Measures Up," reported The Industry Standard. "Hitting Targets, Cisco Sees More Tough Times," noted The Wall Street Journal. The party line was remarkably consistent the morning after Cisco(CSCO Quote) announced quarterly earnings on Aug. 7: What a relief! As bad as the numbers were, the company at least managed to meet Wall Street expectations for the quarter.

To which I say, "Baloney." If you look at the numbers that count and keep your eye on the numbers that we've traditionally used to value Cisco's stock, then this was a worse-than-expected quarter. The deeper you look, in fact, the worse the implications of this quarter's numbers turn out to be for the rest of 2001 and the first half of 2002. And a detailed look also shows that Cisco's most recent quarter signals at least two more quarters of very tough times for Cisco's suppliers.

The Numbers

Here's what the company announced in its late afternoon press release over BusinessWire: "Pro forma net income was $163 million or $0.02 per share for the fourth quarter of fiscal 2001, compared with pro forma net income of $1.20 billion or $0.16 per share for the fourth quarter of fiscal 2000, decreases of 86% and 87%, respectively." Analyst estimates for the quarter had ranged from a high of 4 cents a share to a low of a loss of 2 cents a share. The consensus, according to both Zacks and First Call, was 2 cents a share. (Analysts have always used pro forma income numbers for Cisco because the company is always writing off something from one of its many acquisitions or another.) ...