February 1, 2010 / 1:47 PM / 8 years ago

Cisco set for first quarterly sales growth in year

NEW YORK (Reuters) - Cisco Systems Inc (CSCO.O) is expected to post its first quarterly revenue growth in more than a year when it reports results, as customers more confident about the economy upgrade their networks.

While stronger-than-expected results could provide a jolt to the stock, which has languished for the past three months, investors will also focus on longer-term issues like new rivals Hewlett-Packard Co (HPQ.N), International Business Machines Corp (IBM.N) and China’s Huawei Technologies Co HWT.UL.

Cisco is one of the first major technology companies to report results including much of January 2010. Its performance and outlook are often an early indicator for the rest of the technology sector, especially in enterprise spending.

Results in the past few weeks from rivals Juniper Networks (JNPR.N) and Intel Corp (INTC.O) have reinforced hopes that corporate spending is back after two years of dismal growth.

“Fundamentally, things are strengthening for Cisco, and despite some lingering component shortages, we believe the company closed its January quarter on a positive note,” said RBC Capital Markets analyst Mark Sue.

For the fiscal second quarter ended January 23, analysts on average expect Cisco to report revenue of $9.4 billion, up from $9.1 billion a year earlier, according to Thomson Reuters I/B/E/S. Results are due February 3 after the market closes.

Analysts expect the recovery to continue through 2010 and forecast revenue to rise to $9.5 billion in the third quarter.

Cisco’s revenue had been falling since the January quarter of 2009. Now, analysts say customers, including phone companies and large corporations, have struggled to cope with growing wireless and Internet traffic.

They said the results and outlook for the new quarter will likely underscore stronger demand for Cisco’s routers and switches, although some warned that a shortage of components may have constrained growth.

MORE RIVALS AHEAD

Investors will once again scrutinize Chief Executive John Chambers’ comments this week. At the World Economic Forum in Davos on Friday, he told CNBC that global economies had become more stable.

“Here in Davos, the mood is much more positive than a year ago, especially for the technology companies,” he said.

Analysts hope he will also address how the company plans to compete with a growing number of rivals.

In addition to long-time rivals like Juniper and Brocade Communications Systems Inc (BRCD.O), Cisco now vies with large-technology companies like HP, which is set to buy network equipment company 3Com COMS.O.

Cisco has encroached on HP and IBM’s turf by selling software, data center servers and a wider range of technology services. Those companies have in turn retaliated by forging sales partnerships with other network equipment makers.

Cisco’s main advantage against its smaller rivals has been its large sales force, as well as the breadth of its portfolio. Analysts say its newer rivals may be tougher to beat.

“Now we’re seeing these super big companies. The dynamic is changing,” said Catharine Trebnick, analyst at Avian Securities.

Chambers is also expected to elaborate on the company’s plans in China, where it competes with Huawei and others. It has announced plans to buy the set-top box business of Hong Kong-based DVN Ltd (0500.HK), its first acquisition aimed at the world’s No. 3 economy.

Cisco announced in January that it was restructuring its management to create an independent segment for China, and that it would relocate its top executive in the region to Beijing from Hong Kong.

That announcement came a day before Google’s (GOOG.O) surprise revelation that it may leave China. While it is unclear whether Cisco knew about Google’s move, analysts said it underscored the company’s intent to show it was committed to doing more business there.

Chambers met Chinese Vice-Premier Li Keqiang in Davos.

Editing by Edwin Chan and Bernard Orr

Our Standards:The Thomson Reuters Trust Principles.
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