Hot Topics To Watch For In Cisco's Q4 Earnings

A New Year At Cisco

Cisco's fiscal 2011 began on Aug. 1, and given the groundwork Cisco laid during its last fiscal year, with everything from its consumer advances to acquisitions, adjacencies and an all-out data center assault, it's going to be another wild, woollly, opportune-rich year for Cisco and its partners.

That said, Cisco wasn't spared the effects of the economic downturn and subsequent demand upturn, which sent its supply chain into a tailspin and left the networking titan shorthanded in more than one product line. All of it will be on the minds of investors, analysts and channel partners Wednesday when Cisco reports Q4 and yearly earnings.

Cisco's report is scheduled for 4:30 p.m. EST. Here's a look at topics that'll be top of mind as John Chambers and Co. give a rundown.

Numbers Vs. Expectations

First, the raw financials: Cisco is expected to report about a 28 percent increase in sales, with analysts predicting 42 cents a share for Cisco on revenue of $10.9 billion. If it pans out, that would be a spike from 31 cents a share on $8.5 billion in revenues in the year-ago quarter.

Whether the numbers line up exactly, Wall Street is confident in a big quarter for Cisco. "All indications are that demand for Cisco products remained strong throughout the quarter, with the company's newer products continuing to lead the way," wrote BMO Capital analyst Tim Long in a research note this week, also noting that Chambers' commentary "should set the tone for Cisco and the rest of tech."

The continuing economic softness in Europe has been a concern for Cisco, as well as other tech giants, in recent months, but a quick scan of Wall Street analyst research notes this week doesn't suggest it'll be much of an issue on the call.

Supply Chain Update

Cisco's supply chain woes are by now well documented: a pullback in demand during the recession, an uptake in demand that happened much faster than anyone expected, and product shortages and lead time difficulties for Cisco that according to some Cisco partners, might have been at least partly alleviated with better communication to the channel on Cisco's part. In the past several earnings calls, Chambers and other Cisco executives have reported continued progress on the supply chain issues but remained vague on both their extent and how long they expect those issues to continue.

Look for plenty of questions for Team CIsco on the supply chain, as well as whether lead times for some of the most affected product lines -- including in switching and security -- have returned to normal.

UCS Has Muscles

There's no question that Cisco's major data center play, the Unified Computing System (UCS), has seen substantial growth since its introduction a year and a half ago. Last quarter, Cisco noted 900 UCS customers to date and a run rate of $200 million to $250 million for UCS. According to Oppenheimer & Co., which in late July released results of its quarterly survey of Cisco resellers, some 60 percent of Cisco's channel expects continued moderate to high UCS adoption within the year. UCS, it appears, has traction.

Cisco's been a lot more public about discussing key UCS wins, too, shopping around implementation victories with everyone from distributor Westcon Group to key VAR partners. It's also been placing greater emphasis on the VCE coalition it has with EMC and VMware, and the Acadia cloud computing venture it's mounting with EMC, as well as the flow of UCS sales through two-tier distribution.

Got It Covered: UC And C

The research note from Oppenheimer & Co. also identified unified communications as a major area of strength for Cisco in Q4, and the past few months have definitely seen a number of new UC and collaboration advances from the company, including the most comprehensive update yet on its enterprise collaboration platform, Cisco Quad, TelePresence interoperability with third party products and the push of its Intercompany Media Engine, and new UC-geared products, including the Cius tablet (see slide 9), not to mention its integration of Tandberg's sizable video line.

UC was and remains a key Cisco battleground, but it has plenty of hungry competition in the form of everyone from Avaya and ShoreTel to Microsoft and Siemens. Will Chambers and his lieutenants hint at how they see Cisco's UC vision continuing to evolve?

Dark Horses

Cisco plays a lot of markets this days, so it's easy to get focused on one or more obvious ones (data center, unified communications, consumer electronics), and take your eye off other areas in which Cisco may have a lot to talk about.

Cisco is no small fish in service provider routing for example, but only now is the market starting to bud again. Researcher Dell'Oro Group last week projected a revenue increase of more than 60 percent worldwide over the next half-decade, following the service provider router market's plummet in 2009. The cause? Internet traffic demands, which, along with Cisco's snazzy CRS-3 and a heating-up competition with Juniper, Alcatel-Lucent and Huawei, are a favorite Cisco talking point.

And, hey, what do we make the $99 million acquisition of CoreOptics Cisco made in May? It's been years since Cisco made any major optical networking moves at all, let alone an acquisition. At the very least, Cisco sees stiff competition for optical networking shaping up.

The A-Word: Adjacency

The analysts love to get Chambers talking about his favorite "adjacencies" -- that is, markets where Chambers sees golden opportunity for Cisco to invest -- because that chatter often provides hints on where Cisco will place its bets or look to acquire. Energy and smart grid technologies, for example, have recently been one of Cisco's hot hands, and one that a year ago Chambers predicted would grow to be a $20 billion business.

Perhaps none of Cisco's adjacencies gets as much attention as its home and consumer plays, however, which have included the continued growth of the Flip video cameras and also Cisco Valet, a new line of home networking routers Cisco said are part of a more recent focus on simpler designs.

Also worth noting: two of Cisco's key acquisitions closed in the past few months -- of Moto Development Group, a design consulting firm, and of the set-top box business of Hong Kong-based DVN Holdings Ltd. -- are both consumer- and home customer-geared.

Cloudy Forecast

Cisco's cloud strategy often comes up, and in recent months, the networking giant's focus on cloud computing technologies and cloud plays across its various product lines has been a regular discussion point. One sign Cisco's cloud priorities are getting even more intensive? In June, the company tapped former Sun Microsystems executive Lew Tucker to be its new cloud CTO, backstopping the efforts of Cisco CTO Padmasree Warrior and her role as Cisco's chief cloud strategist.

Cius Is Believing

Meet the Cius: an Android tablet, UC device and arguably Cisco's most buzzed-about product release since the UCS was unveiled in March 2009. Announced during Cisco Live in late June, the Cius is said by Cisco to offer realtime video, multiparty conferencing, e-mail, messaging, Web browsing and cloud-based content sharing. Physically, it's 1.5 pounds, offers 8 hours of battery life and includes a front-mounted 720p HD camera and a 7-inch VGA touch target display, plus a 5-megapixel rear-facing camera.

Cisco said the Cius will support Cisco Quad and other Cisco collaboration tools, and also be supported by Cisco's Unified Communications Manager, which was enough to excite solution providers curious about what their role in Cius sales will be when the device finally lands in 2011.

It's Cisco, it's a tablet (definitely trendy), it's geared to enterprise (very trendy) and it's an Android device (mega-trendy, given the explosion of Android devices out there).

Setting The Tone

Taken together, all of these categories should help Chambers and Cisco set their tone for the new fiscal year. But observers pay very close attention to tone any time there's a Cisco earnings call: if Chambers seems a little withdrawn (and withdrawn for the super-energetic Cisco chief is a relative term), the markets panic.

But maybe Cisco's tone and the market's reaction have a strange relationship, anyway; after Cisco's Q3 earnings report, with Chambers describing the quarter as one of the best Cisco had ever had, Cisco's stock dipped and Chambers was hustled into a CNBC interview to explain his "tone." Over-intepretation or mixed messages?