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Cisco Systems reports fiscal courth-quarter results on Wednesday.


Cisco Systems

should be a major beneficiary of an emerging acceleration in corporate technology spending, although component shortages could muffle growth in the short run.

Investors will get fresh insights on the outlook when for the networking giant reports fiscal fourth-quarter results after the close on Wednesday.

For the quarter ended July 31, Cisco (ticker: CSCO) has projected revenue growth of 6% to 8%, with non-GAAP profits of 81 cents to 85 cents a share, and a non-GAAP gross margin of 64% to 65%. At the top of the range, it would be Cisco’s best quarterly growth since 2012. The Street consensus forecast calls for revenue of $13 billion, up 7.2%, with non-GAAP profits of 82 cents a share.

For the October quarter, the Street consensus calls for revenue of $12.8 billion and non-GAAP profits of 81 cents a share.

In reporting third-quarter results, CEO Chuck Robbins warned that supply chain issues probably would continue at least through the end of the year, and that revenue guidance would have been higher otherwise. Cisco has been seeing both higher-than-normal component pricing and surging freight costs.

Street sentiment is bullish heading into the quarter, with the company benefiting from an increased focus on security, the adoption of hybrid work environments and strength in data center spending, among other factors.

Morgan Stanley analyst Meta Marshall wrote in a research note last week that recent supply checks find “the demand environment remaining strong with resellers tracking slightly above plan,” but with supply chain issues a partial offset.

Marshall reiterated her Overweight rating and $57 target price on the stock, noting that “demand strength supports upside” over the next few quarters, but with supply constraints a limiting factor. She said calls with resellers find that “lead times remain elongated and unpredictable,” and that price increases on some products “have not been well received.” Marshall wrote that lead times for some products have stretched out to 40 to 50 weeks.

Evercore ISI analyst Amit Daryanani likewise maintained his Outperform rating and $62 price target. He projected “sustained upside” despite the supply issues, driven by a combination of the strong IT spending environment, a recovery in service provider demand and easy comparisons with the year ago period.

Daryanani sees Cisco posting a beat-and-raise quarter. “Our checks across Cisco’s ecosystem indicates that while demand remains robust at the channel level, they are seeing growing backlog and continued supply chain driven issues,” he wrote. “We think [this] will diminish but not take away the upside at Cisco.”

Citi analyst Jim Suva is more cautious, writing in a research note that the investor focus is likely to be on gross margins—and the company’s ability to pass along higher costs to customers. “Despite an improving demand environment, we don’t believe investors are expecting a material Cisco beat and raise,” he wrote. “We remain on the sidelines with our cautious view on Cisco’s ability to gain share and return to prior growth rates.”

In afternoon trading Monday, Cisco shares were off 0.8%, to $56.01.

Write to Eric J. Savitz at [email protected]


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