Cisco's Q4 results: What will it indicate about IT spending?

Brocade warned and Juniper disappointed, but others note healthy appetite for IT

We all know what's happening in the stock market and the economy after the debt ceiling debate and the lowered US credit rating from Standard and Poor's. But is this indicative of the direction of IT spending?

A better indicator will come tomorrow, when Cisco discloses its fourth quarter financials. Preliminary reports and other previews indicate an "in line" quarter, meaning Cisco will deliver on the guidance it set forth after Q3's results.

That's Cisco specifically. In the realm where Cisco plays - networking and IT - other indicators are mixed. Brocade last week warned that its Q3 would fall short of expectations due to a shortfall in SAN sales. A week earlier, Juniper recorded a disappointing Q2 due to lower service provider spending, product transitions in core routing, and a drop off in sales of its security gateways and firewalls.

Major service providers spent most of their budgets in the first half of the year, so that's not coming back this year. But what about enterprise IT? Do Brocade and Juniper indicate that overall IT spending has been cut back? Or that enterprises just aren't buying firewalls and SANs at the moment?

Financial analyst UBS states that Brocade's Ethernet/IP business, which is expected to be up 12%-13% from last year, will be "slightly" soft due to lower IT, and federal government spending. Federal is a given - vendors cite its softness every quarter as a factor in their disappointing outlooks.

But at 13% growth in switching from last year, is IT spending down? Or are they just buying more switches and less SANs? Brocade's storage business in Q3 is expected to be down 5% to 6% from last year.

And in Juniper's case, sales of the SRX firewall was down 17% in the company's second quarter. Yet sales of EX switches - product, not services - was up 17%, though Juniper's market share is just shy of 2%.

Has overall spending declined? Or just shifted? Oracle in June said software license sales were up 19%, an indicator that IT spending is strong. And Gartner raised its IT spending forecast a little over a month ago.

Cisco will be a more accurate barometer of that for the networking industry due to the breadth of markets it is in. UBS is looking for Cisco to hit its guidance of $10.98 billion in revenue - flat from last year -- and earnings. Federal and service provider will be soft, as expected, but enterprise and commercial will drive the quarter, with more demand consistency in US enterprise, according to UBS.

Others, like Olivetree Securities, aren't so sure due to "macroeconomic" factors, which usually means less spending in a flat to down economy, and Cisco's internal challenges:

We think that the current quarter figures and the next quarter guidance for Cisco are unlikely to be strong. We remain of the view that the current quarter has been damaged by an internal focus on the restructuring, and the macro environment is more than likely to miss the $10.97bn and 38c estimate that the Street has in for the quarter.

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