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Analyst: Why There’s Hope for Growth at Cisco

Althea Chang
Big Data Download
Analyst: Why There’s Hope for Growth at Cisco

Cisco reports earnings on Wednesday, and while the tech bellwether isn't expected to issue better guidance for the rest of the year, it is poised for growth, according to one analyst.

Cisco's (CSCO) main suppliers, Broadcom (BRCM) and Cavium (CAVM), reported an uptick in sales at their enterprise data center businesses, and increased demand at those companies are a positive indicator of demand for products like Cisco's, according to Brent Bracelin, an IT and computer networking analyst at Pacific Crest Securities.

Broadcom reported better-than-expected sales in the first quarter, with 6 percent growth in its infrastructure and networking business segment year over year, according to the company's latest earnings report. Broadcom said it expects continued growth in that segment in the second quarter as well. Cavium reported a 14 percent sequential increase in enterprise data center sales in the first quarter.

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But investing in older tech names comes with some risk. "Tech is challenging. IT spending is under pressure," Bracelin explained. And it may be difficult to determine whether increased demand for Cisco's products comes from vendors that are restocking or end users who are confident enough to start spending on tech again, Bracelin said.

"The traditional tech names like EMC (EMC) and Cisco haven't really outperformed. Clearly the traditional tech names have struggled and you do have a pretty major transition to cloud computing," Bracelin said on "Big Data Download."

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But Cisco's sales growth will likely be helped along by new products including switching, wireless, software and services, Bracelin said. He expects sales to improve at Cisco during the second half of this year and said the stock is undervalued. Companies like F5 Networks (FFIV) and Riverbed (RVBD) are also poised for growth in the second half of this year, Bracelin added.

Neither Pacific Crest nor Brent Bracelin own Cisco shares but Pacific Crest does make a market in the stock.

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