Tech Stocks Ride on Cisco's Outlook

Cisco's April quarter is expected to fall steeply; what interests analysts is the CEO's business outlook.
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Updated from 7:59 a.m. EDT

Looking for signs of a tech recovery, investors are turning their eyes to

Cisco's

(CSCO) - Get Report

earnings report after the bell Wednesday.

Cisco's April quarter sales are expected to show another a steep decline, somewhere in the range of 20% down from year-ago levels, but Wall Street is tuning in for CEO John Chambers' special message on the business outlook.

So far, gear peers like

Alcatel-Lucent

(ALU)

,

Ericsson

(ERIC) - Get Report

and

Juniper

(JNPR) - Get Report

have not exactly offered a rosy forecast for the current quarter as telcos remain stingy on orders.

And in the recent round of first-quarter earnings, six of 13 big tech shops said there were signs of stability after months of tumbling demand. But that whiff of stability came from an

early and possibly fragile blossom

: consumer spending. Few signs suggested that demand had stopped falling in the corporate IT market.

Cisco is a big player in IT, selling routers and switches to businesses with large data networks.

Analysts who have checked Cisco's sales channels offer a mixed view on the quarter.

"Our U.S.-centric checks suggest Cisco had a slow start to the quarter, but business picked up in late March and into April," Jefferies analyst Bill Choi wrote in a research note Tuesday.

Other analysts had a different view. "March was good, but April sales were down below Cisco's own targets," says Telecom Pragmatics analyst Sam Greenholtz.

The business conditions in the last quarter of the month tend to influence a company's outlook. Bulls want to hear that Cisco has turned the corner, but if there's more rough road ahead, the stock may suffer.

Bears, on the other hand, are

expecting some disappointment

. The short interest in Cisco's stock is only down slightly from a recent one-year high. There are 75.1 million shares shorted, meaning investors have borrowed the stock and hope to repay it at a lower price. That compares with 76.6 million shares shorted in March.

Analysts expect Cisco to post an adjusted profit, excluding special items, of 25 cents a share on $8.07 billion in sales, according to Yahoo! Finance. Looking ahead to Cisco's July quarter, analysts expect Cisco's pro forma profit to be 27 cents a share on $8.26 billion in revenue.

If Cisco guides below that target, the stock will struggle. But Chambers could smooth the message if he offers any evidence that orders have stabilized.

"We expect CEO John Chambers' tone to be mixed but optimistic -- he will likely be encouraged by the recent stock market rally, even though broad-based signs of a return to spending have yet to be seen," writes Broadpoint AmTech analyst Mark McKechnie.

Investors will listen closely to hear if Chambers thinks the worst has passed.

"We expect improved commentary from CEO Chambers," JPMorgan analyst Ehud Gelblum writes, "including flat-to-up quarter-over-quarter guidance for the fiscal fourth quarter, which, although equates to down 20% from year-ago levels, also indicates we may have reached a bottom."

Cisco shares were falling 0.9% to $19.46 in recent trading.