By Nicola Leske
(Reuters) - Cisco Systems fourth quarter results may not renew the spark in Wall Street's fading love affair with the network equipment maker, but for those investors looking for a steady and predictable relationship the company is unlikely to disappoint.
"The fourth quarter is typically Cisco's strongest, but it is only expected to be flat quarter-on-quarter," Tim Long, an analyst at BMO Capital Markets, said in a note. "That said, Cisco has executed much better of late and is doing a solid job of managing what is within its control."
Analysts on average expect earnings per share of 45 cents and revenue of $11.61 billion when Cisco reports its fiscal fourth quarter on Wednesday.
Cisco, founded in 1984, has delivered on its promises ever since it launched a major restructuring program just over a year ago that included job cuts and cost savings aimed at making the company leaner and more efficient.
The San-Jose, California based company spooked investors three months ago, however, when Chief Executive John Chambers cautioned that macroeconomic conditions in Europe could hurt technology spending.
Some analysts said at the time that tech spending may rebound in the second half of the year as it did last year.
Deutsche Bank analyst Brian Modoff said recent signs were showing that enterprise IT spending in the United States was stabilizing and that IT spending among Fortune 100 companies was improving modestly.
"We note that large telcos such as Verizon Business and AT&T are in the process of meaningfully scaling out their Cloud services infrastructures, an attractive near-term growth opportunity for Cisco's data center equipment sales," Modoff said.
Ehud Gelblum, an analyst with Morgan Stanley, said that accelerating demand from service providers primarily in North America in the second half of 2012 would likely offset slower orders in enterprise, Cisco's exposure to Europe and flat public sector spending.
In its fiscal 2013 outlook, Cisco is expected to remain cautious on Europe and federal spending, though that will likely be factored into expectations and the stock valuation, analysts said.
Cisco's shares have gained almost 26 percent over the last 12 months, but is down 2.1 percent year-to date. They closed trading Friday at $17.47.
The company's shares trade at 9.2 times estimated 12-months forward earnings, which is a discount to smaller rival Juniper Networks, whose shares are valued at 20 times, according to equity research firm StarMine, which gives more weight to estimates from analysts with a better track record.
Most analysts shrugged off Cisco's competitive threats from technological developments such as software defined networking (SDN), an area where VMware recently made a major acquisition, in the near-term.
"Longer term, while the competitive threat from SDN seems real and could potentially undermine some of Cisco's core businesses, it is still a long way from being broadly deployed across networks," BMO's Long said.
VMware said last month it would acquire privately held Nicira Inc for $1.05 billion. Nicira sells software that lets customers create virtual networks that can operate independently of underlying physical networks in what is called software-defined networking.
"We believe the common perception that VMW's acquisition of SDN upstart Nicira signals eventual commoditization of Ethernet switches is grossly misguided," Gelblum said.
(Reporting By Nicola Leske; Editing by Peter Lauria)