Cisco's Turnaround Tale Set to Continue

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SAN JOSE, Calif.(TheStreet) -- Cisco reports its third-quarter results after markets close on Wednesday with all signs pointing to another chapter in the networking giant's turnaround tale.

This time last year, Cisco was on the ropes. Pummeled by poor execution, weak consumer spending and intense competition, Cisco CEO John Chambers implemented a massive corporate overhaul in an attempt to build a leaner and more focused company.

Cisco, led by John Chambers, reports third-quarter results after market close.

After enduring a turbulent 2011, Cisco is now reaping the benefits of its revamp. The San Jose, Calif.-based company put out strong second-quarter results in February, announcing that it hit the $1 billion target for its expense-reduction plan a quarter early.

Rob Lloyd, Cisco's vice president of worldwide operations, recently told TheStreet that the company has completed its turnaround and is now increasing the pressure on its competitors.

Set against this backdrop, analysts are expecting good things from the company's third quarter, particularly after underwhelming numbers from rivals Juniper and Alcatel-Lucent .

"Anticipate a decent quarter," explained Sterne Agee analyst Shaw Wu, in a recent note. "Our channel feedback indicates that part of the reason is likely because Cisco continues to operate with more confidence and aggressiveness with its refreshed product line, making it tougher for competitors."

Sterne Agee's checks point to strong demand in wireless, security, collaboration and Cisco's data center business, which is centered on its UCS product. Demand for the company's routing, services and switching business, which make up almost three quarters of total revenue, is "muted but stable" added Wu.

TheStreet will be live-blogging Cisco's third-quarter earnings, starting at 3:45 p.m. EDT.

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"We believe Cisco continues to benefit from its business realignment implemented three quarters ago, which should lead to better sales and operational execution in the quarter," explained Nomura analyst Stuart Jeffrey, in a note released earlier this week. "The recent earnings results and commentary from its tech peers have been mixed. The data points on enterprise spending have remained stable, which we think bode well for Cisco's switching business."

Switching accounted for just under a third of Cisco's total revenue during the second quarter, with services and routing making up 18% and 21%, respectively. Cisco's switching and routing businesses both enjoyed 8% year-over-year revenue increases during the quarter, while services grew 11%.

Analysts surveyed by Thomson Reuters expect Cisco to report revenue of $11.57 billion and earnings of 47 cents a share, up from $10.9 billion and 42 cents a share in the prior year's quarter.

Sterne Agee's Wu thinks that Cisco's fourth-quarter guidance will bolster the company's shares. "We believe this could mark the fourth quarter in a row where Cisco does not guide down expectations, further building investor confidence," he said.

Apple's eagerly anticipated next-generation iPhone could also be a growth catalyst, according to Wu.

"We see Cisco benefiting in the second half of 2012 from the continued build-out of 4G LTE wireless infrastructure ahead of the iPhone 5 refresh likely in the September-October timeframe," he explained, in his note.

Cisco also sees a big opportunity tied to tablets such as Apple's iPad and the slew of Google Android devices entering the market. Lloyd recently told TheStreet that the company has seen improved demand for a number of its offerings since Apple kick-started the tablet revolution in early 2010. This has resulted in "huge" growth in the tech bellwether's Wi-Fi business, he said, as well as a boost in security sales.

Despite the tech bellwether's resurgence, Cisco's shares have gained just 3.48% this year to reach $18.71, prompting talk that the stock is undervalued by up to 200%. From a technical perspective, Cisco's relative strength index of 33.72 also suggests that the stock is edging close to oversold territory.

Cisco shares closed down 1.94% on Tuesday.

--Written by James Rogers in New York.

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