Earnings Preview: Cisco to report 2Q earnings

NEW YORK (AP) -- Cisco Systems Inc. is set to report financial results after the market closes on Wednesday, for a quarter marked by renewed investor confidence.

WHAT TO WATCH FOR: Cisco, the world's largest maker of computer networking equipment, is sensitive to economic trends, and started warning in April that global economic conditions were deteriorating. But conditions improved in the quarter that ended in October, and investors expect that the momentum continued into Cisco's fiscal second quarter, which ended in January.

Cisco's stock is now trading at its highest levels in a year, up 42 percent since a low hit in July. Investors want the company to meet the high end of its earnings and sales ranges to sustain that stock performance. As usual, analysts will be listening keenly to the often wide-ranging post-report commentary from CEO John Chambers.

Chambers, 63, is one of Silicon Valley's longest-serving CEOs. He's nearing retirement and looking to hand over to a successor in two to four years. There are two chief candidates: Rob Lloyd, the head of sales and product development, and Gary Moore, the chief operating officer.

Cisco has come out of the recession a slimmer, more focused company by pruning its ambitions to expand into new markets. It continued paring back in the latest quarter by announcing the sale of its home networking unit, which uses the Linksys brand, to Belkin. The price was not disclosed.

At the same time, Cisco has articulated an ambition to be the "No. 1 IT company" by broadening its offerings of services and software for businesses. That doesn't mean it's going to be the biggest-selling company. That goal is out of reach, as IBM Corp.'s revenue is twice that of Cisco. But Chambers wants the company to loom largest in the minds of its customers and to be the one setting the pace in the industry.

WHY IT MATTERS: Cisco, which is based in San Jose, Calif., is one of the largest technology companies. Its wide reach and sensitivity to business and government investment cycles make it something of an economic bellwether. It's a component of the Dow Jones industrial average.

WHAT'S EXPECTED: Analysts polled by FactSet expect Cisco to report earnings of 48 cents per share, excluding items and the cost of stock-based compensation. That's at the high end of the company's own guidance of 47 cents to 48 cents.

Analysts expect revenue of $12.1 billion, also at the high end of the company's own estimate of $11.9 billion to $12.1 billion.

Cisco usually provides an outlook for the new quarter. Analysts are expecting earnings of 49 cents per share on $12.2 billion in revenue.

LAST YEAR'S QUARTER: Cisco reported net income of $2.2 billion, or 40 cents per share, on revenue of $11.5 billion.