Cisco to meet quarterly target, disappointment expected on outlook

Cisco, which is expected to meet estimates when it reports its first-quarter results on Tuesday, is seen as harbinger in terms of spending on information technology because of its global reach and customers across all sectors.

Chambers has been warning since April that businesses are reluctant to spend and that conditions will get worse before they get better.

Most analysts expect him to stay conservative given continued financial weakness in Europe and a drop in U.S. federal spending as concerns mount over the so-called fiscal cliff, which refers to a combination of tax hikes and spending cuts that loom at the end of the year and may tip the economy into recession.

JP Morgan analyst Rod Hall said he has changed his investment recommendation on Cisco to neutral from overweight in light of weak corporate and government spending as well as the continued economic pressure in Europe, but also in regard to longer term risks.

"To be clear, we're not making a call on (fiscal quarter)FQ1'13, but do believe FQ2'13 guidance is likely to disappoint and expect 2013 to be a tough year as macro pressures persist," he said.

Hall also said he anticipated that Cisco could face some risks by 2014 from technological developments such as software defined networking (SDN).

SDN lets customers create virtual networks that can operate independently of underlying physical networks, which may pose a threat to Cisco's network dominance.

BMO Capital Markets analyst Tim Long said that in light of a cautious outlook BMO has reduced its 2013 earnings per share outlook to $1.94 from $1.96 and lowered its sales outlook for Cisco to revenue of $48.9 billion from $49.2 billion.

"October results should at least meet expectations, though guidance is likely more at risk," Long said in a note.

Analysts, on average, expect Cisco to post EPS of 46 cents and revenue of $11.79 billion in the quarter that runs until end-October, according to Thomson Reuters I/B/E/S.

Wedbush analyst Rohit Chopra said Cisco has proven it can ride out tough times.

"Despite the macroeconomic environment, we believe Cisco is well positioned given its track record in navigating challenging environments, its broad portfolio of products, and continued actions to control its cost structure ahead of its rivals," Chopra said. "We advise long-term investors looking for a well-capitalized company that can weather an uncertain spending environment to own the stock."

Cisco shares were up slightly at $16.90 on Monday. The stock has lost around 10 percent in the past month and is down 7 percent year-to-date. - Reuters

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