--Cisco to meet with investors Tuesday.
--Analysts see company's restructuring effort paying off.
--Stock has edged up more than 3% over past three months.
By Benjamin Pimentel
Cisco Systems Inc. (CSCO) will meet with investors Tuesday at a time when some analysts see it's recent restructuring efforts starting to pay off, even as the tech giant faces a murky economic environment.
The upbeat investor view is somewhat reflected in the company's stock, which has edged up more than 3% over the past three months while those of its competitors have taken a hit amid mounting market uncertainty. However, Cisco shares are still down more than 20% year-to-date.
"The situation may have stopped getting worse for Cisco and most of the disruptions (some self inflicted) may now be behind us," RBC Capital analyst Mark Sue said in a note to clients on Friday.
Sue raised his rating on Cisco from underperform to sector perform, or neutral, citing "cost cutting to cushion the earnings outlook in the current challenging macro environment."
Auriga analyst Sandeep Shyamsukha also upgraded Cisco last week, raising his rating to buy from hold, arguing that the company is poised "to regain momentum through a combination of improving product cycles, aggressive pricing and superior execution."
Shyamsukha said the company is "well positioned to gain market share in key segments like switching, routing and servers in both enterprise and service provider segments from competitors like H-P (HPQ) and Juniper.(JNPR) "
Cisco had kicked off the year on a rocky note, as the company took a hit from signs of weakening demand and criticisms that its aggressive push into new markets was taking a toll on its core networking businesses.
In February, Chief Financial Officer Frank Calderoni asked investors to "bear with us a quarter or two." Then in April, Chief Executive John Chambers announced the company was taking "bold steps" and "tough decisions" to regain its momentum.
Cisco unveiled plans to cut thousands of jobs and streamline its operations. The company also said it was selling its set-top box manufacturing plant in Mexico to Foxconn Technology, and was shutting down its Flip video camera business.
Analysts point to the competitive challenges Cisco faces especially as the corporate IT market undergoes a period of major consolidation.
"We continue to believe Cisco faces several challenges, including rising competitive pressures and mix issues given transitions in its switching portfolio," Oppenheimer analyst Ittai Kidron said in a note. "This combination is weighing on margins and cannibalizing revenue."
UBS analyst Nikos Theodosopoulos also highlighted competitive factors, saying in a note, that "pricing pressure is increasing from vendors looking to grow their Ethernet switch business, including H-P, Juniper and Brocade (BRCD), as well as Dell (DELL) , which intensified its efforts recently with its announced plans to acquire privately held Force10."
Theodosopoulos said that based on checks, Cisco is "now more aggressively matching competitor pricing" in the switching market "to maintain share, which suggests that gross margins on switches is likely to continue to fall."
"Cisco may be testing the resolve of H-P and others in the switching market by matching pricing," he added.
A key question at the analyst meeting will likely focus on Cisco's long-term annual revenue growth rate, especially after the company backed off its earlier outlook of 12% to 17% yearly rate.
"We consider a mid to upper single digit growth rate as most appropriate for Cisco at this juncture," Theodosopoulos wrote. "The law of large numbers now works harder against Cisco."
-By Benjamin Pimentel; 415-439-6400; AskNewswires@dowjones.com