Carl Russo, vice president for Cisco's optical networking group and formerly chief executive at Cerent, told attendees at a Thomas Weisel Partners investment conference here that Cisco has "improved visibility" now that most carriers have committed to certain spending levels.
"They've clearly all downsized their budgets, but every major carrier has a fixed capital plan for this year and that's improving our visibility," Russo said.
In recent years, some carriers had some flexibility to spend more on new gear and in the past even continued spending through the seasonally slower November and December months, he said.
Reduced telecommunications spending and uncertainty has gripped the market, with most carriers rethinking their initial capital expenditure plans. This has led to a downturn in the fortunes of several networking hardware manufacturers, from Cisco to Nortel Networks. For example, Cisco missed quarterly earnings estimates last month and announced that the company's sales would be flat for the next two quarters.
But most analysts and industry executives remain optimistic that carriers will eventually continue to build the infrastructure to support Internet traffic and other advanced communications services. Analysts suggest the spending, though reduced, will increasingly go toward new optical systems, high-speed broadband gear for business customers and hardware for metropolitan areas rather than older, traditional communications equipment.
"There's a bifurcation in the market. There are pockets of growth, though carrier spending is down," said Hasan Imam, an equity analyst at Thomas Weisel Partners. "There are select areas that are still doing well."
Cisco executives remain optimistic that most of their optical products will continue to sell.
Russo said the company, known for its Internet routing gear, has made inroads among larger carriers with its optical products and now collects roughly 80 percent of its sales from larger carriers, which represented about 20 percent of the company's optical business just a year or so ago. Cisco now has 600 customers for its optical products, which make up less than 10 percent of the company's revenue, Russo said.
"There is an enormous amount of business out there for us that we're closing," Russo said. "And they're ever-bigger deals with ever-bigger carriers."
Separately, Banc of America Securities, an investment banking firm, downgraded Cisco shares today to a "buy" rating from a "strong buy" recommendation. Analyst Christopher Crespi reduced his fiscal 2001 earnings-per-share estimates to 60 cents from 63 cents and for fiscal 2002 to 70 cents from 75 cents.
"We believe the current slowdown of North American carrier spending, as well as reduced (information technology) budgets, will likely lead to a longer-than-expected transitional period before resumption of normalized growth," Crespi said in a report Tuesday. "Europe also is starting to show signs of weakness."
Stock in Cisco gained nearly 4 percent to close at $24 despite the downgrade. Cisco shares, which have headed south since last September, have traded as high as $82 and as low as $21.94 in the past year.