The Cisco Kid Was No Friend Of Mine (CSCO, JNPR, AV)

John Chambers, Cisco's (NASD:CSCO) long-time CEO, gave a command performance on the company's earnings call and then forecast revenue in the next quarter to be as low as $7.8 billion.Revenue for the quarter ending April 29 was $7.2 billion, up from $6.2 billion in the quarter last year and helped by a contribution of $407 million from Scientific Atlanta, a set-top box company Cisco Systems bought in February. One analyst, quoted by the Associated Press, reflected the market's feeling: "Given the bullish talk on the conference call, in the end it's a ho-hum number," said Samuel Wilson, a senior analyst at JMP Securities. "They want to talk about how good business is, but they want the bar to be really low."

The stock pulled back in the pre-market to $21.28, still near the 52-week high of $22. The low for the period is $16.83.

There was nothing wrong with Cisco's fiscal Q3, but there was not a lot right with it either. Revenue was up, but only by 12% without Scientific Atlanta. Operating income fell from $1.818 to $1.653 billion.

And, the market is nagged by doubts about whether Cisco can become the growth engine it was from 1995 to 2001 when revenue rose from $4.1 billion to $22.3 billion. As Morningstar put it, investors are concerned that competitors like Huawei Technologies, Juniper (NASD:JNPR), and Avaya (NYSE:AV) have Cisco's number. If so, the company's margins and growth are bound to be squeezed.

The doubts on Wall Street are still reflected in the stock. Although it has moved up in the last five months, it still trails the Nasdaq over the last two years with vitually no gain in share price over that period while the IXIC is up over 20%.

Cisco is going to have to do as well as Mr. Chambers says it will, and better than its guidance, if it wants to see its share price completely on the mend.

CSCO 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at [e-mail].