Will the Turnaround at Cisco Systems Stick?

How goes the turnaround at networking giant Cisco Systems? Today we’ll get another chance to look in on its progress, as the company reports quarterly results.

Cisco’s recent history is peppered with instances of missed quarters that deliver on results but offer poor outlook. After a restructuring that saw the company cut 6,500 jobs, kill its consumer-oriented products, sell off its Mexico-based manufacturing operations to China’s Foxconn and recalibrate its long-term growth expectations with the financial community, the pressure is on Cisco and its CEO John Chambers to show that the changes were not only for the better, but that they’re taking hold.

Cisco is supposedly back in fighting trim. A new ad campaign, coupled with aggressive strategies in new market areas like cloud computing, coupled with a pivot away from unsuccessful consumer products, suggest that the company is back on track. But can the apparent progress made last quarter stick?

Analysts are expecting a profit of 43 cents a share on sales of $11.23 billion. Analyst Sanjiv Wadhwani of Stifel Nicolaus expects the results to come in slightly better than that. Writing in a research note to clients last week, he checked Cisco’s channel and found that sales of switching products, weak in recent quarters, appears on track to better than expected. Router sales appeared stronger versus competitors, specifically Juniper, despite a relatively weak environment for IT spending overall.

Geographically, spending in the U.S. was steady and, surprisingly, so was spending in Europe, except for in southern European countries like Greece and Italy, were the sovereign debt crisis has been so acute.

Weaknesses will be apparent, Wadhwani says, in sales of set-top boxes, suffering, in part, because of the shortage of hard drives as a result of the flooding in Thailand. Gross margins, a key metric of profitability, may be down slightly in part of a large sale of aggressively priced routers to China. One bright spot of note: During the quarter, Cisco announced that its Unified Computing System — its cloud computing hardware offering — has reached 10,000 customers and is, roughly, a $1 billion business.

Wadhwani says he expects Chambers to set a positive tone in his guidance. “As far as orders are concerned, feedback has been generally positive and consequently we expect the company to provide solid guidance for April. We also expect a positive tone from CEO John Chambers with optimism about the U.S. leading the world in an economic recovery.” That would be a nice change from the depressing results announced a year ago.