Everyone awaited the earnings release of
Cisco a few weeks ago.
Would it have a blow-out quarter? Or, would there be ominous signs of
problems?
Well, Cisco is highly skilled at managing its earnings. Hey, the company can
do a virtual close of its books on a daily basis. Consider this: Cisco has
beaten Wall Street expectations for the past 13 quarters by a mere one cent
each time.
The past quarter was definitely strong. Net income was $1.36 billion on
sales of $6.52 billion in sales. During the same period last year, net
income was $814 million and sales were $3.92 billion.
On the conference call, Cisco expects to show 50 to 60 percent revenue
growth for the next year. For a company of Cisco’s size, such growth is
astonishing. But as we have seen in the past few months, nothing seems to
satisfy Wall Street. Cisco’s stock, as a result, has been treading water.
But there are legitimate concerns. No question, the future is optical
communications. However, despite a variety of acquisitions (such as the
mega purchase for Cerent), Cisco is still lacking.
Look at terabit routers. These allow for the relay of data across optical
networks. True, Cisco has a line of terabit routers. The problem is that
Juniper has better
technology. Its router can process IP at OC192, which is 10 Gbts per
second. As a result, Nortel signed a huge alliance with Juniper.
Moreover, while the optics market is growing at break-neck speed, it is
different from Cisco’s traditional customer base. After all, it is telecom
providers that make big purchases of optical networking equipment. In fact,
there is very little customer loyalty; rather, customers look for the best
technology.
But Cisco is undoubtedly going to strike back hard against Juniper. For
example, Cisco recently hired its former CTO, Ed Kozel. He was the person
that transitioned Cisco from start-up to router dominator. He will be the
CTO of the service provider business line.
Also important is the fact that Cisco has a world-class M&A team with
immense experience. Expect more optical merger deals, especially with
recent valuation weakness in the sector. This will help fill out the
company’s product line.
And according to the company’s chief strategy office, Mike Volpi, Cisco will
be introducing an OC192 product to compete against Juniper (either in
December or January). Apparently, interest level is very high. If Cisco
can make substantial inroads, it could be catalyst to move the stock.
