Cisco Systems, Inc. (NASDAQ:CSCO) will be reporting earnings tonight after the market close. Many analysts expect the company to report disappointing earnings. Citigroup Inc. (NYSE:C) downgraded Cisco several days ago, and MKM Partners reduced estimates. Given the plethora of tech companies that discussed slowing demand trends during the later part of September,  many believe that Cisco’s forward commentary will turn more cautious.

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Jess Lubert, CFA, an analyst at Wells Fargo Securities, has a run down of estimates by each segment:

  • Total Revenue: $11.75B (+4% Y/Y, +1% Q/Q) vs. Street $11.77B, Guidance (+4 to +6% Y/Y, implies $11.7111.93B)
  • EPS: $0.46 vs. Street $0.46, Guidance ($0.450.47)
  • Other Key Metrics:
  • Gross Margin: 61.6% (28bps Q/Q) vs. Guidance (61.062.0%)
  • Operating Margin: 26.6% (88bps Q/Q) vs. Guidance (26.027.0%)
  • Switching: $3.60B (flat Q/Q, 2 Y/Y)
  • NGN Routing: $2.16B (+3% Q/Q, +3% Y/Y)
  • Collaboration: $942M (5% Q/Q, 14% Y/Y)
  • Service Provider Video: $1.09B (+13 Q/Q, +24% Y/Y)
  • Wireless: $479M (3% Q/Q, +32% Y/Y)
  • Security: $340M (3% Q/Q, +6% Y/Y)
  • Data Center: $423M (+2% Q/Q, +63% Y/Y)
  • Other: $156M (34% Q/Q, 39% Y/Y)
  • Services: $2.57B (+1% Q/Q, +11% Y/Y)

Below is a list of some questions from RBC Capital, which investors will be focusing on:

  • Structural changes to the networking industry. Investors are concerned that networking will be commoditized and the value of switches and routers shift to software elements. How can Cisco Systems, Inc. (NASDAQ:CSCO) convince investors that its lucrative businesses do not become dis-intermediated  Is the argument the timing (2 years? 7?) or the actual event for Cisco?
  • • GMs & software strategy. Gross margins have slid over the past few years to the current 61.9%, with product GMs at a low of 60.4%. How can Cisco Systems, Inc. (NASDAQ:CSCO) reverse this trend? Can Cisco establish a substantive software strategy to stem margin decline and how long will it take?
  • Getting better or getting worse? Cisco Systems, Inc. (NASDAQ:CSCO) exited July with the highest backlog in history at $5B.  Can Cisco return to +7-12% top-line growth any time soon or is +5% (or lower) the new normal? If Cisco adopts a more aggressive software strategy, does top-line growth go lower before margins go higher?
  • Enterprise and service provider spending. Enterprise spending was on an up-trend exiting last quarter. Has that momentum carried into this quarter? Did strong Federal offset weakness in other verticals? Service provider spending is challenged, especially in Europe. How can Cisco Systems, Inc. (NASDAQ:CSCO) grow and take share in this type of environment?

  • Partnership dynamics with Citrix Systems, Inc. (NASDAQ:CTXS)and VMware/EMC. Are there plans to increase the involvement of the Citrix partnership? Can Cisco/Citrix compete with VMware, Inc. (NYSE:VMW) in the virtualized server environment and how does OpenStack play into that? Since the Nicira acquisition, how has the VMware/EMC Corporation (NYSE:EMC)partnership performed?
  • Dividend yield. Is Cisco’s plan to increase the dividend methodically to reach 5.0% yield in the mid-term? Can Cisco generate enough domestic cash to meet those dividend increases and also maintain share repurchases? What if we get changes to the dividend tax?

  • Bring the cash back? Considering that Cisco Systems, Inc. (NASDAQ:CSCO) has 87% of total cash held overseas, what are future plans for repatriation even without a tax holiday? Is the ROI of bringing back the cash while taking the tax hit to invest domestically greater than potential overseas acquisition opportunities?

Disclosure: I have a long position in Cisco