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As Earnings Beckon, Split Talk Powers Cisco

The networker should beat estimates, but talk of a possible stock split dominates.

We know the drill. But how long before the drill changes?

Cisco

(CSCO) - Get Report

is expected to earn at least 35 cents a share for its fiscal second quarter ended last month, according to a

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survey of analyst estimates. A year earlier, it earned 29 cents a share. Look for another healthy quarter, thanks to Cisco's stable of

Fortune 1000

clients.

And investors are speculating that, with the stock trading at such lofty levels, management is likely to declare a stock split. The stock closed yesterday up 3 7/16 at 115 in heavy trading.

But the game is changing now that telecom supplier

Lucent

(LU)

is acquiring computer networker

Ascend

(ASND) - Get Report

. Cisco is now under more pressure to sell carriers on its brand of Internet-based telephone equipment. Cisco's conference call tonight should provide clues about its progress in penetrating the phone business.

Analyst Bill Rabin with

J.P. Morgan

expects Cisco and Lucent to share some large customers -- but they will still compete for each product line. Lucent will be even more competitive after acquiring Ascend, which already leads Cisco in building large "asynchronous transfer mode" switches that relay data -- and potentially voice messages -- on carriers' networks.

"The biggest thing to look for is what

Cisco says about its new ATM products," says Rabin. Cisco recently sold its new ATM switch, known as MGX, to

MCI WorldCom

(WCOM)

and to the European carrier

Swisscom

.

"I expect to see some resurgence in Cisco's market share," says Rabin. In particular, it will seek business in Europe, where

Deutsche Telekom

(DT) - Get Report

,

British Telecom

(BTY)

and

France Telecom

(FTE)

are planning buildouts. Rabin rates Cisco shares a buy; his firm has no banking ties to Cisco.

The rise in Cisco's stock has prompted speculation that the company will set a stock split tonight. A stock split increases the number of outstanding shares and cuts the share price, making shares more palatable to the retail investor.

A stock split "certainly helps psychology" among retail investors, says Steven Schuster, portfolio manager with

Gemina Capital

.

"I don't think that there's anything to stop this stock," says Schuster, whose firm bought Cisco shares in October. "I'm not comfortable about it," he adds, but he won't sell (partly because of a lower tax rate for holding the shares for 12 months or more).

At a record high of 115, Cisco might be overdue for a split. The company has split its stock seven times since its IPO in February 1990. In late 1997 and late last summer, Cisco split its stock 3-for-2, and both times, the announcements came on the same day the company reported earnings. Cisco announced those splits when its share price hit roughly 80 and 97, presplit, respectively.