weird divergence between CEO John Chambers' optimism for the current quarter and the cheerlessness of the official financial guidance late Tuesday sent Cisco's stock down 4%.
Cisco had been on a winning streak this year, up 27% going into Wednesday's session, and investors were jazzed that the strongest part of the year was still ahead. At least that was the expectation ahead of Cisco's fiscal third-quarter earnings report and conference call.
But now, with the stock's solid early-year run broken, investors are starting to wonder what the future holds for the San Jose, Calif., tech titan.
The company reported strong numbers for the quarter ended last month. Sales hit a record $7.32 billion and adjusted profit was 29 cents a share, beating analysts' estimates and coming in well above the 23-cent pro forma earnings on $6.19 billion in revenue in the year-ago period.
But looking ahead, Chambers placed the company's fiscal fourth-quarter sales goal slightly below Wall Street's target, setting off a chorus of debate over the pace of Cisco's growth.
Chambers helped underscore the tension. He cited recent dour forecasts from information-technology companies, yet added on the call with analysts Tuesday that "our business momentum is actually increasing."
Cisco is either seeing some slowdown or managing expectations in the face of uncertainty. Given the choice, analysts seemed to take clues from Chambers' upbeat tone.
"All indications suggest the environment is improving for Cisco, with strong orders in all the key areas for the third consecutive quarter," Merrill Lynch analyst Tal Liani said in a research note Wednesday. Liani has a buy rating on the stock.
Part of the challenge for investors is figuring out the impact of the Scientific-Atlanta acquisition.
In the fiscal third quarter, Cisco booked only two months of SFA numbers, showing a revenue contribution of $407 million and more than 1 million TV set-top-box shipments. The SFA performance was better than expected on the topline, but heavy merger-related expenses took a toll on margins.
Cisco said SFA had a negative impact of 2 percentage points on total gross margins, which came in at 65.7%. Analysts were looking for about 67% margins. Cisco says it expects its gross margins to recover in the current quarter.
But once again, the words and the numbers didn't add up.
"We found Cisco's guidance somewhat disappointing in terms of implied pro forma earnings per share (excluding options) of $0.28 vs. consensus at $0.29," UBS analyst Nikos Theodosopoulos said in a report. Theodosopoulos has a neutral rating on Cisco.
Cisco shares fell 83 cents to $20.85 in afternoon trading Wednesday.