Cisco’s Ambiguous Q1 Guidance Leaves Market Uncertain

Cisco’s fourth-quarter results hit the street earlier today.

I would rate them a decidedly mixed bag. Cisco’s adjusted earnings for the quarter were about 31 cents per share, comfortably surpassing consensus estimates. Quarterly revenue fell within the range of consensus estimates at about $8.5 billion.

Compared to results in Cisco’s fourth quarter last year, earnings were off 46 percent and revenue was down 18 percent.

More disconcerting was Cisco’s guidance. CEO John Chambers said it was too soon to call a recovery and forecast another drop in quarterly revenue. Despite his reluctance to call a market bottom, Chambers said that Cisco “saw a number of positive signs this quarter in the economy and in our business.”

Yesterday, before the call, I suggested the following:

A key to how the market reacts, as always, will be the guidance provided by Cisco CEO John Chambers and his executive team. Analyst and investors will be listening closely to the tone as well as the substance of what is said. Sentiment – Is the market coming back and, if so, how much? – will be a critical factor in after-hours and next-day trading.

What analysts and investors got from Cisco was measured ambiguity and ambivalence. In the midst of the most punishing economic downturn since the Great Depression, they were hoping for something more definitive and hopeful.

Chambers, as noted above, provided some encouragement, pointing to product lines that were growing, business cycles that were beginning to gain a semblance of normalcy. He also said Cisco now was looking forward to growth, having completed an austerity program that resulted in layoffs of more than 2,000 employees in the last two quarters, a higher number than Cisco disclosed previously.

But despite noting that the fourth quarter delivered the first instance of sequential growth in product orders the company had experienced during fiscal 2009, he wasn’t ready to call it a trend, wasn’t prepared to shovel dirt on the downturn.

That reticence made an impression on those listening to what Chambers had to say. In after-hours trading, as of 7:10pm ET, Cisco shares were down 67 cents or 3.02 percent.

2 responses to “Cisco’s Ambiguous Q1 Guidance Leaves Market Uncertain

  1. You are spot on in noting that Cisco will be challenged to convince customers to buy into an offering available only from Cisco that combines storage, networking and servers.

    As I have pointed out in my own blog, http://www.bladenetwork.net/why-not-ucs.html, Cisco’s so-called “Unified Computing” strategy holds vast and arguably adverse implications, as a way to lock customers into Cisco’s proprietary world while locking out vendors like HP and IBM that are trusted open systems suppliers to enterprises around the world.

    Many enterprise customers that I have visited with across the months since Cisco announced its monolithic strategy agree with me that Unified Computing means standards with a “C.” For example, according to Cisco, converged data and storage networking requires Cisco’s Data Center Ethernet (DCE), thus eliminating freedom of choice with a sole-source Cisco-only server and network. This puts at risk integration and interoperability with vast existing installations. Meanwhile, the rest of the industry is working on an open approach called Converged Enhanced Ethernet (CEE) using IEEE’s Data Center Bridging (DCB) standards.

    Will Cisco spread itself too thin? Time will tell, but the IT world is understandably wary of even the largest vendors when they offer technologies that lock customers into a single source. – Vikram Mehta, President and CEO, BLADE Network Technologies, vikram.mehta@bladenetwork.net

    • Thanks for the comment, Vikram. I appreciate and welcome your presence

      Obviously, Cisco will do what it can to market and sell a converged data-center solution.

      Should customers be wary of proprietary lock-in? Absolutely. They should always have their guards up. Even when they haven’t gone through a formal selection process — something they really shouldn’t bypass — they should know what they want and, more important, know what they don’t want. They should do their homework, thoroughly researching the products and technologies from the vendors pitching for their business. There is no substitute for being an informed buyer, the entity slick salesmen fear most.

      Best Regards,
      Brad

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