Cisco sales pipeline is thawing

In his research note today, RBC Capital Markets Managing Director - Mark Sue offers this refreshing respite, "Cisco's sales pipeline is thawing and we've noticed healthy services revenues offsetting the product softness. The April quarter aside, improving seasonality and a resumption in network switch upgrades may point to better relative trends in the July quarter. Our recent Changewave survey indicates 27% of respondents reporting network utilization of 51-75% up from 23% in the prior quarter. Additionally, 8% of survey respondents indicated they are likely to spend more money in 2Q09 up from 4% in the prior quarter. At its current run rate, we expect Cisco to close the quarter with a book to bill greater than 1.0. "Gross margins may decline sequentially from 64% but may be modestly higher than the guidance of 63% as Cisco leverages its scale and works to tighten its supply chain as purchase commitments come up for renewal. Cisco's earnings visibility is improving, in our view, driven by stringent cost containment. And while revenues are still decreasing YoY, the rate of decline seems to be moderating. Several quarters of limited visibility may persist since networking equipment may be a mid stage recovery segment, yet we're of the opinion that Cisco may hit its earnings estimate for this year as it aggressively cuts expenses." Sue concluded, "Cisco may aggressively decrease operating expenses by over $200M sequentially or +7% by leveraging its own telepresence, curtailing travel, and deferring capex. It's a rolling recovering when it comes to the top line and we're estimating April revenues of $8.1B (-17% YoY) and a decrease of -11% QoQ."

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