First Look at Cisco After the Conference Call (May 8, 2007)

Cisco Systems (CSCO-NASDAQ) shares are trading lower after the company’s post-earnings conference call.  The company has guided revenues in the $9.2 to $9.3 Billion range with gross margins still at 64%.  The First Call estimates ahead are already $9.23 Billion.  The sad thing is that the company was saying this was above their prior guidance, but that’s what happens when the street already makes assumptions of an ongoing bullish story.  The initial verdict is that Wall Street just got ahead of the stock.

It is hard not to take a side here when there is an obvious.  Chambers is a sharp CEO and the company basically knows its financials within a 3-day picture with a fairly high degree of accuracy.  CEO’s now have the job of being conservative in guidance as to avoid being reckless and to avoid personal liability. 

The new revenue growth of 15% to 16% should not really be an ‘oh-well’ or a disappointment to Wall street.  That may be the initial reaction, but all forward quarters from here on out are no longer to be skewed by the huge gains from a non-Scientific Atlanta comparable basis.  The book-to-bill ratio was also above 1.0.   Cisco is still apparently winning new business and winning back old business, some on price and some on the full spectrum of offerings it has.

Traders may be calling the quarter a disappointment with a 5.5% drop in after-hours trading.  The truth is that this really only represents a 3.5% drop if you back out the 2% gains to $28.36.  The stock needed to back off a bit, but as long as the business spending environment doesn’t really dry up then I would give Chambers the benefit of the doubt and accuse him of being conservative.  That’s my take on this developing situation and we’ll address it later in the morning on Wednesday after the bulge-bracket analysts have mostly gotten out of the way. 

If this stock wasn’t back within 2% of a multi-year high right ahead of earnings then this would have been been chalked up as more of a win.  Besides that, isn’t the market closing up and higher almost every day right now?

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in any of the companies he covers.