May 15, 2014, 1:04 PM
- No less than 16 firms have upped their Cisco (CSCO +6.4%) PTs after the company beat depressed FQ4 estimates and offered better-than-expected guidance and order data. The hikes are generally in the $1-$2 range.
- RBC (Outperform) thinks value investors might embrace Cisco as it returns to flat revenue growth and further cuts opex. "[Free cash flow] is predictable at $11B-$12B/yr; we look for Cisco to remain a dividend grower." After backing out ~$30B in net cash, Cisco currently goes for ~8x RBC's FCF target range.
- Goldman (Buy) estimates Cisco's routing and switching numbers were respectively 8% and 2% above consensus, and is pleased with early uptake for the Nexus 9000/ACI SDN platform and NCS and CRS-X core routers.
- Nonetheless, there are still plenty of concerns about long-term challenges. MKM (Neutral), which has already raised alarm bells about SDN threats: "Cisco seems to be benefiting from SDN in the near term, but the competitive landscape is set to become much more difficult over a 12+ month time frame."
- Credit Suisse (Underperform) questions "the size and scope" of early Nexus 9000 deployments. "Our secular concern is that the impact of SDN will introduce more competition at multiple points in the network. While the impact will take time, the threat will be very real, shrinking gross profit dollars for the entire networking stack."
- Shares are holding onto yesterday's AH gains in spite of a tech selloff.
- More on Cisco's earnings
May 15, 2014, 9:15 AM
May 14, 2014, 6:10 PM
- Cisco (CSCO) expects FQ4 EPS of $0.51-$0.53 vs. a $0.51 consensus. In spite of posting an FQ3 gross margin of 62.7%, the company is only guiding for an FQ4 GM of 61%-62%.
- John Chambers once more states Cisco is seeing price pressure in markets such as campus switching (Huawei and H-P are competing aggressively here), but insists SDN (generally seen as a 2015-and-later problem) isn't a factor. Switching, emerging markets, and carrier sales are expected to stay pressured near-term.
- Though GAAP opex fell 2% Y/Y, non-GAAP opex fell 6% (boosted EPS). Headcount declined by 230 Q/Q to 73.8K.
- Data center (UCS server) sales remain strong, growing 29% Y/Y (share gains against Dell/H-P/IBM). Likewise, service provider video sales (-26%, set-top share loss to ARRS) remain weak.
- Wireless sales only rose 3% (possible share loss to the likes of ARUN, UBNT, and HIVE), but orders rose 12%, and Meraki continues seeing strong user growth. Recently-acquired Sourcefire saw orders grow 20%.
- Cisco says its new ACI/Nexus 9000 SDN/networking virtualization platform (praised for its feature set, but not for its pricing) gained 175 customers, and has a pipeline of 1K+.
- More on Cisco's earnings
May 14, 2014, 5:38 PM
May 14, 2014, 4:44 PM
- Cisco (CSCO) guides on its FQ3 CC for FQ4 revenue to be down 1%-3% Y/Y; that's favorable to a -5.2% consensus.
- In addition, John Chambers states Cisco's product orders were "relatively flat" Y/Y, a marked improvement from FQ2's 4% drop. Book-to-bill was "comfortably above 1."
- Strong U.S. (+7% Y/Y) and Northern European (+4%) orders provided a lift. Emerging markets (-7%) and service provider (-5%) orders remain soft.
- Router revenue fell 10%, but orders were nearly flat. Switch sales fell 6%.
- FQ3 results, details
May 14, 2014, 4:20 PM
- Cisco's (CSCO) had an FQ3 gross margin of 62.7%, +140 bps Q/Q and -30 bps Y/Y, and above guidance of 61%-62%. That contributed to the quarter's EPS beat.
- After falling 11% Y/Y in FQ2, Cisco's product revenue (76% of total revenue) fell 8% in FQ3 (share loss in multiple markets). Services revenue (heavily tied to past product sales) rose 3%, even with FQ2. Opex fell 2% Y/Y after falling 6% in FQ2.
- $2B was spent on buybacks vs. $4B in FQ2. In spite of the sales weakness, free cash flow rose slightly Y/Y to $2.83B (exceeding net income of $2.6B). The deferred revenue balance is up 4% Y/Y to $13.2B.
- Cisco now has $50.5B in cash/investments (much of it offshore), and $20.9B in debt.
- CSCO +4.1% AH. CC at 4:30PM, guidance should be provided.
- FQ3 results, PR
May 14, 2014, 4:07 PM
May 13, 2014, 5:35 PM
May 2, 2014, 1:34 PM
- Joel Greenblatt's screen looks to find stocks with high "earnings yield" - a high ratio of profits to enterprise value. Companies are further screened for a strong return on capital. When a stock scores well with both criteria, it's usually a good company being undervalued by investors.
- For picking individual stocks, there are probably better methods, but as a group, Magic Formula names have vastly outperformed the broad market.
- Although defense names have done well over the past couple of years, the Magic Formula continues to identify Northrop Grumman (NOC +0.2%), General Dynamics (GD +1.4%), and Raytheon (RTN +0.6%) as attractive. Firearm names Smith & Wesson (SWHC +0.8%) and Sturm Ruger (RGR +0.3%) also make the cut.
- A number of videogame makers show up as well: Take-Two (TTWO +0.3%), Activision Blizzard (ATVI +0.2%), GameStop (GME +2.8%), and the struggling recent IPO King Digital (KING -0.3%).
- Not too surprisingly, the Magic Formula also continues to like plenty of big-cap tech names: Cisco (CSCO -0.2%), CA, Inc. (CA -0.5%), Microsoft (MSFT -0.5%), Hewlett-Packard (HPQ -0.5%), and Apple (AAPL +0.1%).
- Hardly market laggards, media names like Time Warner (TWX -0.8%), Viacom (VIA +1.4%), Omnicom Group (OMC), and Starz (STRZA +2.3%) also show up on the list, as do struggling multi-level marketers and for-profit education stocks: HLF, NUS, APOL, ESI, CPLA.
- Punished by investors for not being as hot as they once were, Coach (COH +0.2%), Francesca' Holdings (FRAN +0.1%), and Gap (GPS -1.3%) are Magic Formula picks today.
May 1, 2014, 10:33 AM
- Cisco (CSCO -0.3%) will integrate Jive's (JIVE +7%) enterprise social networking platform with its widely-used WebEx (Web conferencing) and Jabber (corporate IM and IP voice/video) tools, and resell Jive's offerings both directly and through its partner network.
- Thomson Reuters is an early adopter of the Cisco/Jive solution: It's 60K employees are able to join/launch WebEx meetings and Jabber chat sessions from Jive's platform.
- The deal gives Jive, whose shares have slumped amid tough competition from IBM, Salesforce, SAP, and Microsoft's Yammer unit, a needed shot in the arm. Microsoft has been working to integrate Yammer with its Lync unified communications solution (competes against WebEx/Jabber) and SharePoint collaboration platform.
- Cisco's collaboration revenue fell 7% Y/Y in the January quarter thanks in part to videoconferencing weakness, but WebEx (21% growth) was a strong point. The Jive deal suggests the company might not make its own acquisition in an enterprise social networking space that has seen consolidation.
Apr. 14, 2014, 7:07 PM
- An April Barclays survey of 100 U.S. and European CIOs found 46% expecting their company's IT spending to rise in 1H14, 20% expecting it to drop, and 34% expecting no change. Those figures compare with September survey levels of 43%, 27%, and 30%.
- Moreover, IT spending growth is seen accelerating in 2H in both the U.S. and Europe. Barclays thinks larger budgets, macro stabilization, and a need for equipment refreshes (due to high utilization rates) could be helping out.
- At the same time, the firm cautions the spending growth is uneven: Software, networking, security, and cloud services demand is healthy, but servers, storage, and IT services remain soft. Interest in the concept of a software-defined data center is gaining traction, but big data (hyped considerably last year) is losing it for now.
- Gartner has forecast IT spending will rise 3.2% this year to $3.77T after growing just 0.4% in 2013. Enterprise software (+6.9% to $320B) is expected to lead the way.
- Barclays thinks its survey bodes well for H-P (HPQ), Juniper (JNPR), F5 (FFIV), Aruba (ARUN), Ingram Micro (IM), and CDW, each of which is rated Overweight.
- Others that might take heart in the survey results: CSCO, ORCL, SAP, CA, SWI, VMW, CHKP, BRCD, ARW, AVT
Apr. 11, 2014, 3:05 AM
- Cisco (CSCO) and Juniper Networks (JNPR) have found the "Heartbleed" encryption flaw in some of their products, including routers, switches, servers, and firewalls.
- The ubiquitous nature of the products makes the bug harder to eliminate, and hackers may be able to steal sensitive data such as passwords and credit-card information as it travels across networks.
- Cisco is investigating 65 products and has confirmed 16 as being vulnerable.
- Juniper's VP of Corporate Communications, Michael Busselen, said the exposure for customers "is minimal," as the problem affected only one product. However, spokesman Corey Olfert warned that updating Juniper equipment could take a while. "It doesn't sound like a flip the switch sort of thing," said Olfert. "I don't know how quickly they can be resolved."
- Meanwhile, Intel (INTC) was still working on a patch for its McAfee security products as of yesterday.
- Vulnerable Cisco products.
Apr. 8, 2014, 10:46 AM
- "We came away from industry interviews in recent weeks with the view that the market has less interest in the Cisco (CSCO +0.1%) product suite than in past transitions," writes Wunderlich's Matthew S. Robinson, downgrading to Hold. "We see the range of alternatives for network automation/software defined networking (SDN), network function virtualization (NFV), and cloud services as dilutive to the Cisco installed base upgrade opportunity."
- Robinson also argues there's "more opportunity" in small cap/high-growth names, given their recent selloff. His PT has been lowered by $1 to $24.
- Plenty of other analysts have raised SDN-related concerns for Cisco. Some have also brought up NFV, which aims to do for higher-level networking tasks (security, load balancing, etc.) what SDN tries to do for switching/routing (allow proprietary systems to be replaced with commodity hardware).
- Cisco recently took another step towards fleshing out its SDN vision by unveiling its OpFlex protocol for interactions between SDN controllers and the hardware they manage. The company argues OpFlex is superior to the widely-embraced OpenFlow on account of supporting a greater level of networking intelligence, and preventing controllers from being a single point of failure.
- Much like its ACI/Insieme platform, OpFlex drives home Cisco's efforts to keep customers from adopting rival SDN solutions by pitching an alternative that provides a rich feature set and deep network visibility, but is also linked to Cisco's proprietary hardware.
- Shares have turned positive after opening lower.
Mar. 31, 2014, 11:08 AM
- Arista Networks, a maker of low-latency/high-density Ethernet switches aiming to upend Cisco's (CSCO +0.8%) dominant data center market position, has filed for a $200M IPO under the symbol ANET. Morgan Stanley and Citi are the lead underwriters.
- Arista's S-1 reveals the company had 2013 revenue of $361.2M (+87% Y/Y), and net income of $20.8M. Analysts previously estimated Arista's 2013 sales would be above $300M, and that the company could see a $2.5B IPO valuation. Opex rose 87% Y/Y to $172.4M.
- In addition to port densities and latency, Arista's hardware is differentiated through the use of a modular, Linux-based OS (EOS) built to handle the needs of massive data centers, and capable of interacting with software from VMware (previous), Microsoft, and others.
- Like Cisco, the rise of software-defined networking (SDN) platforms supporting commodity hardware pose a challenge to Arista. Also like Cisco, Arista has been trying to address the issue in part by making its switches more programmable (via APIs).
- Om Malik, writiing about Arista in 2011: "There are many parallels between Arista and Juniper. Both of them are taking on Cisco Systems in its core businesses ... Both of them picked a “niche” instead of taking on Cisco head-on. Both companies wrote their own network operating systems ... Both companies bet on industry defining megatrends."
- ETF: IPO
Mar. 27, 2014, 3:45 AM
- CEO salaries at companies that generate over $8B in revenues rose 4.1% to a median $9.8M in 2013 as shareholder activism kept a lid on pay, a WSJ-commissioned survey shows.
- While the increase was slightly greater than in 2012, it was well well under the median 25% shareholder return for the companies looked at.
- Clarence Otis of Darden Restaurants (DRI), which is a focus of investor activism, saw his pay drop 24% even as returns increased 4%, and while the compensation of Cisco's (CSCO) John Chambers jumped 49%, returns soared 65%. GameStop's (GME) Paul Raines enjoyed a 92% boost in his salary even though returns rose just 5.4%.
- Other relevant tickers: BBBY, ORCL, NKE, VIAB
Mar. 25, 2014, 9:51 AM
- Spherix (SPEX) shares are +5.2%, with the move being attributed to the company filing a complaint against Cisco (CSCO +0.8%) over 11 patents.
- Historically, Spherix has focused on biotech R&D, but obtained the IP - which was invented by Nortel - following an agreement with the Rockstar consortium that bought the patents from the bankrupt Canadian company.
- "The scope of Cisco’s infringement of the asserted patents has been and continues to be immense," Spherix writes. "The vast majority of Cisco’s switching and routing revenue from March 2008 until the present is and has been generated by products and services implementing technology that infringes the asserted patents."
CSCO vs. ETF Alternatives
Cisco Systems Inc is engaged in designing, manufacturing and selling of Internet Protocol (IP) based networking products and services related to the communications and information technology (IT) industry.
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