Q4 Preview: Cisco (CSCO) CEO Chambers has Investors' Attention on Macro Events

Networking and switch giant Cisco Systems, Inc. (Nasdaq: CSCO) shares are trading slightly lower Wednesday afternoon ahead of its fourth-quarter earnings report.

After the market closes, Cisco is expected to report earnings of 38 cents per share on revenue of $10.98 billion. Earnings would be a 9.5 percent sequential decline, and nearly 12 percent drop from the same period in 2010.

Shares of Cisco fell 8.5 percent to $15.97 at the end of July. The stock is down an additional 12.7 percent since then, and just over 30 percent on the year. Shares have not been trading at these price levels since the first-quarter of 2003. Cisco has traded in a range of $13.30 to $24.60 over the last 52-week period.

Over the last year or so, investors are getting familiar with a pattern: Cisco beats already lowered expectations, then throws-out caution for its outlook. Shares have tended to rebound since then, only to drop once more following earnings. It appears that over the last year those rebounds have smoothed out.

Looking at peer Hewlett-Packard (NYSE: HPQ), who is aiming to take away gobs of market share from Cisco in switching, we note that H-P beat expectations, but Leo Apotheker issued a warning for a "tough" third quarter. Whether that will affect Cisco's results will be seen shortly.

Data from Bloomberg has 20 analysts with a Buy rating on Cisco, 25 at Hold and 3 with a Sell. The price target average is $20 with a low of $15.75 and high of $28.

Analyst Comments

• JPMorgan sees earnings of 38 cents per share and revenue of $10.94 billion in the quarter for Cisco. The firm expects that investors and traders will focus more on CEO John Chambers macro environment commentary. JPMorgan will be interested to see if Chambers says anything about public sector spending, as he's been cautious in the past. Also, an update on enterprise and carrier markets will be expected.
  
  JPMorgan notes carrier CapEx was generally weaker than expected through the second-quarter. JPMorgan is also bullish that Juniper (Nasdaq: JNPR) and Alcatel-Lucent (NYSE: ALU) have gained some market share in switching and routing, respectively.
  
  Looking ahead, JPMorgan sees first quarter 2012 revs of $11.02 billion and EPS of 40 cents.
  
  
• Wells Fargo is modeling for earnings of 39 cents per share and revs of $10.98 billion. Gross margins should be about 63 percent, stemming from better expense controls.
  
  Looking ahead, Wells sees first-quarter revs of $10.81 billion and EPS of 39 cents, earnings being flat sequentially. "With Cisco making significant headcount reductions, we believe our FQ1 operating margin est of 25.0% could prove conservative."
  
  The firm is cautious into earnings.
  
  
• BGC Partners sees earnings of 40 cents and $11 billion in revs. Though the firm sees Cisco switch segment as a source of weakness, BGC comments, "The company grew its collaboration revenue 39%, its wireless revenue 32%, and its Data Center offerings 31% YoY in the prior quarter as overall new product revenue showed continued traction at 15% growth YoY, the fastest growing product category for the company. Other areas of strength include routers at 7% YoY, and services at 15% YoY."
  
  BGC notes Cisco gets 80 percent of switching and 70 percent in routing revs from the public sector, making weakness particularly harmful.
  
  
• Deutsche Bank is modeling for EPS of 40 cents and revs of $11 billion. Deutsche notes that it might be a better-than-feared July quarter, following industry checks "with top-tier VARs, integrators, and IT decision makers suggest that top performing products during Q4 were: 1) datacenter switching; 2) enterprise routing; 3) carrier edge and core routing; and, 4) collaboration." Flattish sequential sales might also occur for Cisco.
  
  Looking ahead, Deutsche is "constructive on the prospects for modest growth in FY12 (we are modeling 5% growth FY12/11) based on catalysts such as: 1) the 10GE datacenter switching and Layer 4/7 upgrade cycle, driven by Intel Romley and VMWare VSphere5 upgrades; 2) the LTE packet core and routing upgrade cycles; and, 3) enterprise video."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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