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Wednesday, November 5, 2008

Cisco (CSCO) - 1Q:2009 results

Current quarter was ok. Orders weaker -- US and UK were both down -- keep in mind, typically they're growth quarters for the company.

The guidance started about 20 minutes before he gave a number. He talked about rapid realignment of costs, of worldwide economic weakness, of Europe starting to roll over, his guidance being unreliable because he's only had visibility worse than this once before... then the bomb. Revenue for next quarter will be down 5-10% year over year. That's approximately 8.9 - 9.35 bil in dollar terms. The street has 10.3 bil modeled but thats a fuzzy number in my mind -- surely I'm not the only one that thought they were having a rough time.

The stock is down 6% after-hours. Now comes the test. Can investors look through this quarter? Is it going to stay bad or did September and October's worldwide market shocks create unsustainably low spending levels?

Unfortunately I think the answers aren't clear and my crystal ball is equally fuzzy. I think its unlikely we see IT spending roar back this year. Cisco did not cut their long-term revenue forecast of 12-17% (which surprised me a bit). I suspect until they capitulate on that the stock isn't going anywhere. Expect numbers to come down for next year. I'd guess $1.40 - $1.50 is the first cut. I'd also say the stock ought to trade at the low end of their long-term forecast with visibility as poor as it is. That'd be a hair under $17 at the low end of where I envision consensus going (12 * 1.40 = $16.80). It's fairly valued here... if you think $1.40 is as low as the numbers for next year are going. My guess is they go lower eventually but it's probably dead money here either way.

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