Cisco Earnings Preview
P/>The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) --
Cisco
(CSCO) - Get Report
is set to report its second-quarter earnings today.
Here we highlight a few key trends to watch for in the upcoming earnings release. Cisco competes with
HP
(HPQ) - Get Report
,
Juniper Networks
(JNPR) - Get Report
,
Alcatel-Lucent
(ALU)
and Huawei-3Com in the network equipment business.
Our
Trefis price estimate for Cisco stands at $21, which is about 15% above the market price.
See our full analysis on Cisco
here.
Cisco's revenues have increased for the past four quarters. In the first quarter, Cisco's revenues grew about 5% inspite of the company's top line suffering from continued lower government spending in both the U.S. and Europe. Cisco also pointed out concerns in its last quarter earnings about the uncertainty in the macro environment and mentioned explicitly about keeping a check on expectations and "model conservatively.".
Cisco's second-quarter revenue is expected to increase 7% to 8% year over year.
In the first quarter, Cisco's gross margins contracted both on a year-over-year and quarter-over-quarter basis as the firm faced intense competition from players like Alcatel-Lucent, Hewlett-Packard, IBM and Juniper Networks as well as Chinese firms like ZTE Corporation and Huawei Technologies Co.
As competition remains intense and the overall market spending takes a hit, Cisco's margins can be expected to dip by 80 to 100 basis points during the quarter. However, Cisco seems to be focused on improving its margins and will be realizing only $100 million of severance charges in the second quarter of the total $1 billion projected for fiscal 2012 to keep its operating margin from declining.
Cisco has so far realized $925 million of the severance charges related to its workforce reduction program announced in July 2011, but it will be good to see if Cisco reports some real numbers for the estimated annual expense reductions of $1 billion it aims to achieve in its second-quarter earnings report.
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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
