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Cisco might miss 4Q, 2002 estimates

Cisco Systems Inc, the biggest maker of computer-networking equipment, may miss fiscal fourth-quarter earnings estimates because of slowing orders, some investors said.

The company may miss analysts' estimates for either the quarter ending July 28, the first quarter, fiscal 2002, or all of the periods, said Steve Mygrant, Fifth Third Bank's Technology Fund manager whose fund owns more than 6 million Cisco shares.

Boris Boehm, a money manager at Nordinvest, which owns Cisco shares, also said Cisco may miss fourth-quarter estimates.

Rivals Juniper Networks Inc and Nortel Networks Corp said this month they will miss estimates because of slowing demand for gear that handles Internet traffic and phone calls. Those market forces are likely to affect Cisco also, investors including Boehm and Mygrant said, which could hurt the company's share price.

"I think 2002 is going to be weaker than projected," said William Schaff, portfolio manager of the Berger Technology Fund, which reduced its Cisco holdings last year. "All the big shareholders have thrown in the towel in terms of expectations."

Cisco spokeswoman Abby Smith said "we don't comment on guidance during the quarter."

The San Jose, California-based company expects fourth-quarter sales to range from little changed to down 10 percent from third-quarter sales of US$4.73 billion.

Shares of Cisco, already down 76 percent in the past year, are likely to trade between US$20 and US$14 in the next year, Mygrant said. That's a range of a 21 percent rise to a 15 percent decline.

The shares fell US$0.15 to US$16.50 on Monday. They traded at a 52-week high of US$70 on Aug. 9.

Shares of Cisco could decline to less than US$10, said Marvin Roffman, president of Roffman Miller Associates, who advises his clients to sell the stock.

"I personally think it's going to be a hat size -- which is a single digit -- before this is over," Roffman said. "Business is very slow." The company's price-to-earnings ratio has fallen to 30 times last year's earnings from a high of 192.94. Still, that's more than the average of 28 in the Standard & Poor's 500 Index, according to Bloomberg data.

Makers of equipment that handles Internet traffic have fired workers and cut costs as some smaller phone companies ran out of money and bigger carriers canceled equipment orders. Cisco gets about a third of revenue from phone and Internet companies, analysts estimate.

"Expectations are pretty low," said Fifth Third Bank's Mygrant. "I kind of feel like I need to put my helmet on and get in the bunker." Cisco is expected to earn US$0.02 a share, excluding acquisition-related costs and charges, in the fourth quarter on sales of US$4.3 billion, according to analysts surveyed by First Call/Thomson Financial. Analysts surveyed by First Call expect Cisco to earn US$0.05 cents a share in the first quarter on sales of US$4.4 billion.

Chief Executive John Chambers has given little detail on earnings forecasts for 2002 or the fourth quarter. He has stood by Cisco's forecast that sales will rise 30 percent to 50 percent annually in a healthy economy.

Cisco's third-quarter sales fell 4.2 percent to US$4.73 billion, their first decline since the company sold stock to the public in 1990.

Investors say they're awaiting company forecasts for next fiscal year, when sales could rise if phone companies increase spending.

"I'm not even really concerned with what happens for the rest of this year," said John Oglesby, portfolio manager at Legacy South Inc, which owned 246,319 Cisco shares as of March.
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