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Previewing Cisco's Earnings

November 8, 2012 | Telepresence Options
By Lee Samaha - November 7, 2012
The Motley Fool,

Cisco gives results next week and they always tend to move the markets.  It is such a wide ranging company that many conclusions and pointers can be garnered from looking at the numbers from its component parts.  If you are holding one of these companies or, even Cisco itself, it is useful to prepare for the results. I thought I would give investors a 'heads up' on what they might expect.

Cisco Breakdown

For the record I don't think Cisco's last results were particularly good. However investors were pleased by the commitment to return free cash flow to shareholders and by the dividend hike. In a way these measures confirm the main attraction of Cisco these days as being a kind of value dividend play. The hard reality is that it got that way because the market doesn't really seem to believe in its growth potential anymore.

It's time to look at how Cisco generates its revenues.
Switching & Routing

I'll start with Cisco's core divisions of switching and NGN routing. Here are yearly growth rates.
cisco1_large.pngI'm not expecting anything great here. IBM recently talked of a fall off in enterprise spending in September and precious few tech companies have reported results that contradict this view. Given the lumpiness in Cisco's switching and routing divisions over the last few years it is hard to argue that it wil report anything great here.

As evidenced above Cisco was up against some pretty weak quarters in the previous year within switching, but the easy comparisons seem to stop going into Q1 2013. I would expect a decline in revenues and my back of envelope benchmark would be for switching revenues around $3.55 billion.

As for routing,

Q1 tends to see a sequential pick up of around 4.5% but the previous quarter's numbers were pretty strong.  Was there some pull forward? We shall see. Again a vague benchmark number to look for in routing would be around $2.15 billion.

My guess is that the numbers could come in weaker then these figures. I suspect this because telco dependent companies like Acme Packet reported weak spending by Tier 1 carriers and F5 Networks  also reported another sequential decline in spending from telcos. The ISPs and carriers are certainly not ramping up spending. And finally, look out for any commentary on whether Chinese rivals such as ZTE or Huawei are being price competitive in order to try and grab market share.

Collobaration & SP Video

For the sake of brevity I want to look at these two together. Collaboration encompasses unified communications, call center and TelePresence.  A look at how year on year revenue growth is progressing.

Collaboration competes with a company like Polycom which recently reported a .5% decline in sequential revenues. Cisco's results tend to mirror Polycom's, but I suspect the latter's initiatives have helped it grow a bit better than Cisco. On that basis beating the sequential move of Polycom would see Cisco reporting higher than $985 million in revenues for collaboration. Although I wouldn't be surprised to see a number lower than this because things like TelePresence really are geared towards expansionary spending by enterprises.

As for SP Video this division tends to report a double digit decline in sequential revenues going into Q1 so don't be surprised if there is a decline again here. A guesstimate would see revenues here at around $865 million.

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