When there's a changing of the guard at the US Federal Reserve and the new strategy is not entirely clear, and when the macro-economic data do not point unambiguously in any particular direction, this week, investors will mainly be listening to John Chambers, the man who for nearly twenty years has headed Internet infrastructures gorilla Cisco (CSCO) , not as founder but as a salaried employee.
In January 1995, Chambers took charge of Cisco with annual sales at $70 million, and he does not look as though he will be departing any time soon, with annual sales at $46 billion.
On Wednesday after the close, Cisco will be the first major company to release financials for the quarter to January, and, if he keeps to his usual custom, Chambers will have things to say in the analysts conference about macro-economic matters in the US and beyond, and his remarks are likely to have consequences for what happens to the correction in the markets.
Despite the fears arising from the emerging markets, analysts believe that Chambers will have no difficulty in meeting the lowered forecast for the January quarter that he gave in the conference call last November, namely sales of around $11 billion, and they presume that Cisco will beat the earnings per share forecast, thanks to higher share repurchases at rock bottom prices. As always, the guidance for the next quarter, to April, is what will determine the direction of the share price, and the estimates point to a small rise in sales, of around 2%, in comparison with the January quarter.
A few hours before Cisco, EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH) will report on the quarter to December, and, although Cisco is its largest customer, there is no point in trying to draw conclusions from the results of the one about the other. EZchip should report all-time peak sales, of $20 million, and earnings per share of $0.34, both figures representing growth of more than 30%. Net cash has probably grown to around $200 million, more than a quarter of the company's market cap.
Rising investment in telecommunications infrastructures, chiefly in LTE, is providing a following wind for EZchip's sales, , and what Cisco loses in China for political and other reasons, EZchip should gain through the giant local telecommunications vendors, ZTE and Huawei, and the other way round outside China, where those two companies experience difficulties for those very same reasons. As usual, the share price will respond mainly to the guidance, but also to where the company is positioned on the road map of the future for fifth generation processors, chiefly the NPS, which will gain EZchip entry to new markets and customers.
If, in the third quarter, the EZchip stock was roiled by rumors to do with Cisco and its existing and new processors, in the past three months silence has reigned. Even the company itself seems to be competing with a Trappist monastery, because it has not released a single statement since the previous financials.
On the other hand, it has been very active at professional conferences, mainly those connected to the NPS processors and SDN (software defined networks), and I hope that we will receive a little more "meat" in the analysts' call on Wednesday.
What SodaStream's (SODA) sexy and expensive clip starring Scarlett Johansson at the Super Bowl failed to do for its share price, Coca Cola (KO), paradoxically, did a few days later with its investment in a potential competitor to SodaStream, Green Mountain (GMCR). Coca Cola will invest $1.3 billion for 10% of the home coffee machine maker, which wants to enter the soda machine market next year. Had Coca Cola wished, I believe it could have bought SodaStream outright for the same sum.
Essentially, Coca Cola has acknowledged for the first time that a market for home soda machines exists and is important to it, which is a blow to the many short players in SodaStream who see this is a bubble market in every sense. Pepsico (PEP) has to respond by investing or acquiring SodaStream, several experts say, but I am pessimistic. SodaStream has unwillingly become a political company, and Johansson's brave stance has led to higher political waves than ever.
When I added SodaStream to my portfolio here, I had no idea that I was entering a political minefield. This is a company that provides a living for the families of hundreds of Palestinians, both managers and staff, beyond the Green Line, and closure of its plant will mean a terrible economic disaster for them. On the other hand, if this does happen, various human rights organizations that have never heard of being wise rather than right will celebrate with champagne in European hotel lobbies.
I don't see Pepsico getting into this minefield, unless its CEO Indra Nooyi, an Indian-American who has seen what poverty and distress are in her country of origin, is courageous enough to make an investment or acquisition that would be intelligent from a business point of view, but also very humane, and to put politics to one side.
The writer serves as a consultant and investor in securities, and advises the Pia Select Nasdaq fund. This column should not be seen as advice or a recommendation to buy or sell securities, including securities mentioned in the column. Anyone who acts in reliance on the column is exclusively responsible for any damage or loss they may incur.
Published by Globes [online], Israel business news - www.globes-online.com - on February 10, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013