Cisco sends up a warning flare

Q1 hits the mark but outlook for Q2, FY 2011 is weak

Citing a "challenging economic environment," Cisco's fiscal 2011 second quarter outlook fell far short of Wall Street expectations. It's an indication that the economic recovery is slow and will obviously take longer than many had hoped.

Cisco expects its second quarter sales to only be up 3% to 5% from last year's Q2, and adjusted income to hit $.33 to $.35 per share. Consensus analyst estimates were 13% year-over-year growth and adjusted income at $.42 per share. Cisco's stock is tanking right now.

Company CEO John Chambers provided the glum outlook during today's conference call on Q1 results, which came in pretty much as expected: $10.75 billion in revenue, up 19% from last year; and adjusted income of $0.42 per share, actually $.02 better than Wall Street estimates.

Per share earnings, on an adjusted basis, were 10% better than last year.

Yet it was Cisco's light guidance that disappointed the Street.  CEO John Chambers noted particular softness in service providers, public sector and in European sales. Capital spending is moderating, he said, though Cisco expects these issues to be short-term.

But guidance for the full year of fiscal 2011 will fall short of Cisco's 12% to 17% target, and that of the Street. The company is forecasting 9% to 12% growth, which equates to $43.6 billion to $44.4 billion - a billion or two shy of Wall Street's $45.3 billion expectations.

It just might be the Downturn 2.0 that some suspected after Cisco's Q4 2010...

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