selloff notwithstanding, it seems clear the economy is improving. Now Wall Street is itching to see if tech spending is picking up, too.
That's why all eyes will turn Tuesday afternoon to
. The big San Jose, Calif., network gearmaker is set to post fiscal third-quarter results. Coming on the heels of last week's solid April jobs report and Monday's
inflation-fearing rout, the company's comments should give investors a read on the hotly anticipated information technology-spending recovery.
Some analysts say the stage is set for a return to sunny words from Cisco CEO John Chambers. After long embodying Silicon Valley's sky-is-the-limit side, Chambers in recent years has offered little more than guarded optimism.
But now there's reason to believe Chambers will have an opportunity to change his tune, analysts say. And that's likely to be a good thing, not just for the broader tech sector but also for Cisco's struggling stock, which has lost 25% off its January high.
"He may have to put a lid on that caution," says Friedman Billings Ramsey analyst Susan Kalla. "Jobs are up. IT spending should be up. I think they may come out with some aggressive guidance."
Kalla has a buy rating on Cisco, and FBR makes a market in Cisco stock, which fell 7 cents Monday to $21.62.
Stuck in the Mud
This isn't to say everyone sees the quarter as a slam-dunk. Investors, after all, haven't been treated to any stirring success stories lately among Cisco's networking gear peers.
sales in the first quarter, while solid, were
not enough to satisfy rising expectations. Meanwhile,
turned in a
ho-hum performance and
swallowed up in a widening accounting scandal.
As for Cisco, a slow start in February gave way to brisk sales in March and April, say industry observers who have checked supply channels. On average, analysts expect the company to post an 18-cent-per-share profit on $5.5 billion in sales, according to a Reuters Research tally.
Several analysts say they wouldn't be surprised if the company stuck to its pattern and ended the quarter slightly ahead of both top- and bottom-line expectations.
More intriguing is whether the company has maintained its order momentum. Investors are understandably eager to hear Chambers describe the mood among business customers. Cisco's dominance of the corporate computer networking market gives it a prime vantage point to judge spending trends. And Chambers has certainly relished the opportunity to play the role of global economist in the past.
But some investors say, ever since Chambers
blew a big call in 2000 by pointing up as the market veered down, he has been far more circumspect in his predictions.
Money manager Doug Whitman with Whitman Capital is a long-time Cisco fan, and he says it's not likely that Chambers will make any sweeping pronouncements this time around.
"He'll be mildly more optimistic, which is indicative of the change in the economy," says Whitman. "The real question is, what is the pace of the turnaround?"
Beyond guidance, investors hope to hear a progress report on some of Cisco's growth businesses like storage, security and sales to phone companies.
Though Cisco executives may not spend much time on earnings day discussing shifts in business strategy, investors and analysts say the company could briefly talk about the opportunities in the network services market.
Cisco has been preparing a strategy to extend its talents at integrating network gear beyond its own equipment sales and installation, say analysts. This network-management outsourcing role was made popular in the last decade by outfits, like
, that were keen on finding new sources of revenue beyond hardware sales.
Network integration and management is a competitive field with notoriously low margins, and it has grown more crowded as big tech shops like Lucent and
have made it a priority.
Still, observers say tight information technology budgets and reluctant hiring have overtaxed many companies' tech departments. These customers need to turn to outside help, and that could help Cisco go beyond products and into integration.
The only problem is that could hurt Cisco's margins, says money manager Whitman, and "Wall Street isn't prepared for that."