What’s wrong with Cisco’s earnings?

So what’s wrong with the Cisco earnings for the third quarter? After all, the company reported stellar results and beat expectations by a penny. On the face of it, things are peachy down in San Jose. However, let me point out a couple of things. First instead of 12 weeks, the Q3 2004 was 13 weeks long or roughly an additional $430 million or so in sales. (January 24 to May 1, 2004 in case you want to nit-pick!) That alone is enough to tip the earnings up by a penny or so. Do I hear someone say a backend loaded quarter?

In addition, the deferred revenue has ballooned from $3.7 billion in Q1 2004 to $4 billion in Q2 2004 to $4.4 billion in Q2 2004, which tells me that the company has a lot more room to play with future earnings reports. But that’s my suspicious mind…right! And lastly Linksys, that wonderful and most beautiful home networking equipment maker with its cheap Wi-Fi products – it added $174 million in sales to Cisco.

Cisco says its total revenue in the quarter was $5.6 billion in this quarter, up 21.6% from $4.6 billion in the Q3 2003. Now take away $174 million from that total. Since Cisco did not own Linksys last year, the apple-to-apple revenue comparison should be $5.43 billion or up 17.9 percent. Not that there is anything wrong with that – it is still a substantial growth spurt, but just pointing it out. However, if you take that one week’s worth of sales out of the equation, and the question you are left asking – where’s the beef dude? The 12-week organic revenue (that is minus Linksys) comes to around $5 billion.

* Chambers’ chatter