Baird maintains their Neutral rating following CSCO's in-line FQ2 results and guidance well below expectations last night (down 15% - 20% YoY versus firm's est down 14% and Street down 11%). Deterioration in order rates accelerated through January with no sign of stabilization, which drove further reductions in Cisco's outlook and bodes poorly for the entire networking space. Operating margin is compressing rapidly despite cost cutting initiatives. Firm remains on the sidelines as they feel a
coordinated global recovery across many market segments is required to stabilize Cisco's fundamentals. Implications are negative for other networking cos as Cisco was the first to report January results, revealing continued deterioration in trends. They see incremental risk to the outlook for other networking companies, particularly those exposed to Service Provider, which deteriorated fastest relative to Cisco's expectations.
Jefferies notes with a global recession underway, demand for networking equipment is deteriorating. In their view, Cisco is trying its best to contain costs without implementing a major layoff and preparing for a market recovery. However, if the environment worsens, they believe they are prepared to take further action. They prefer Cisco's solid balance sheet, market leadership and diversified exposure.
Firm maintains Buy and lowers their tgt to $18 from $19... Credit Suisse maintains their Neutral rating and see shares remaining range-bound, with a downward bias, until rev growth rates stabilize and begin to expand. Until firm has visibility as to macro-economic recovery, they see EPS forecasts remaining subject to downward revisions and low confidence levels and do not see a catalyst to drive sustained share appreciation.
FY3Q09 guidance and commentary supports their view that the magnitude of the impact of the global macro-economic downturn has not been fully discounted by the Street. They believe the key variable, going forward, will be gross margin as they expect CSCO to scale opex reductions based on scope of rev decline and timing of rebound. Firm also cut their tgt to $15 from $16.
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