Cisco's miss sends jitters in supply chain

SAN JOSE, Calif. - Cisco Systems Inc. on Wednesday (Aug. 11) posted lackluster results-a move that could impact select chip makers, such as Cavium, NetLogic and others.

Cisco reported fourth quarter net sales of $10.8 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.33 per share, and non-GAAP net income of $2.5 billion or $0.43 per share. Net sales increased 27 percent year-over-year, while income jump 79 percent.

There appears to be a sudden slowdown in the cell-phone, PC and other product segments-a trend that impacts chip makers. Now, there is a slowdown in one of the hottest markets to date: LEDs. With Cisco's mixed report, could communications be next?

''Cisco reported Q4 FY10 revenue of $10.8 billion, slightly below consensus of $10.9 billion. Revenue was at the high-end of guidance; therefore, the slight revenue miss was more so a function of consensus estimates being too aggressive,'' said Gary Mobley, an analyst at Benchmark, in a report.

''Fourth-quarter product orders grew 23 percent. The midpoint of Cisco’s Q1 FY11 (October) revenue guidance is $10.73 billion (up 19 percent year-over-year) versus prior consensus of $10.95 billion. Management commented that the pace of the global economic recovery has slowed, and accordingly, management wants to be conservative with guidance,'' he said.

Cisco and the company’s manufacturing partners buy approximately 1 percent of all semiconductors produced globally, according to the report. As a result, Cisco's chip vendors-such as Cavium and NetLogic-could be impacted.

Cisco represented 25 percent of Cavium’s first-half 2010 revenue, up from 20 percent of 1H FY09 revenue. Cisco represented 29 percent of Netlogic’s 1H FY10 revenue.

''While Cisco’s business continues to grow, the company reported revenue and provided guidance slightly below consensus,'' he said. ''Based on Cisco’s business trends, there is no evidence that companies such as Cavium Networks or Netlogic Micro will miss 2H CY10 consensus expectations. However, both chip companies will likely enter a mode of simply hitting consensus versus the beat-and-raise results posted over the past year. Cavium and Netlogic both guide conservatively and typically cushion guidance with intra-quarter softness at Cisco, the largest customer for both companies.''

MIPS Technologies Inc. ''has some indirect exposure to Cisco,'' he said. ''Many of the processors used in Cisco’s routers, switches and set-top boxes are MIPS-based, and accordingly, MIPS collects royalties from the merchant suppliers of those processors.''

Atheros Communications Inc. is another Cisco customer. ''Cisco likely represents no more than 5 percent of Atheros’ revenue. For FY10 and FY11, Entropic Communications will likely derive 5 percent to 10 percent of sales from Cisco’s Scientific Atlanta division (set-top boxes). Cisco likely represents only 5 percent of Broadcom Corp’s revenue,'' he said.