/// Back In Its Skinny Jeans, Cisco Systems Looks for Fat Profits
Networking giant Cisco systems will report quarterly earnings today after the markets close in New York, and the pressure will be on CEO John Chambers to show that the changes made as a result of the company-wide restructuring he led last year — the one that made Cisco look like it was fitting back in its skinny jeans — are taking permanent hold. The question is whether or not it can start delivering some fatter profits. The consensus of Wall Street analysts has Cisco reporting sales of $11.6 billion in sales and reporting 47 cents per share of earnings. The big question, writes analyst Sanjiv Wadwani of Stifel Nicolaus in a note to clients on May 7, will be around margins. Last quarter, Cisco gave guidance for gross margins — a key measure of profitability — with a narrow range of 61.5 to 62 percent, while operating margins were guided to the range of 27-28 percent. Wadwani thinks that guidance may stand up as pressure on Cisco’s supply chain from the Thailand flooding, favorable pricing on switching products and a less-aggressive posture from Hewlett-Packard’s networking arm, are all providing a little breeze at Cisco’s back. Yet one product in Cisco’s stable may, in success me hurting margins overall: Cisco’s Unified Computing and Servers line (UCS) tends carry a lower gross margin, Wadwani writes, and so may eat into its overall gross margin. The product line — which combines computing, storage and networking into a single product offered to the corporate and service provide data centers — had 10,000 customers worldwide last quarter , and was showing “positive momentum” in Wadwani’s checks. “Overall, we believe that there is intense focus on margins internally, which should allow the company to report an in line margin quarter,” Wadwani wrote. Cisco has been operating “with more confidence and aggressiveness with its refreshed product line, making it tougher for competitors,” writes Shaw Wu of Sterne Agee in a note to clients issued May 7, and has been a lot of reason that Juniper and Alcatel-Lucent have missed expectations recently. He expects Cisco to give guidance for the quarter ending in July that’s more or less in line with consensus expectations. He also sees Cisco benefiting from Apple’s next iPhone: “We believe this could mark the fourth quarter in a row where Cisco does not guide down expectations further building investor confidence. We see Cisco benefiting in the second half of 2012 from the continued build-out of 4G LTE wireless infrastructure ahead of the iPhone 5 refresh likely in the September-October time frame.” I’ll be covering Cisco’s earnings announcement later today. Having dedicated songs to CEO John Chambers two quarters in a row now, I’m going to have to scramble to see what song fits today’s results, because I just know he’s going to ask.
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