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Earnings Preview: Cisco to report 3Q earnings

NEW YORK (AP) -- Cisco Systems Inc. is set to report financial results after the market closes on Wednesday for a quarter marked by weak results from competitors and a pullback in federal government spending.

WHAT TO WATCH FOR: Orders for computer networking equipment have slumped this year, judging by reports from smaller companies in the sector. Analysts expect that Cisco was affected as well and have been trimming their estimates recently, but they say the company's size probably shielded it from the worst effects of the macroeconomic "soft patch."

As usual, analysts will be listening keenly to the often wide-ranging post-report commentary from CEO John Chambers. Cisco's fiscal third quarter closed in April, a month after most other companies, which means its report provides a window into more recent developments.

Matthew Robison at Wunderlich Securities said the federal government's spending cutbacks were an unavoidable factor. Big defense contractors are protected by contracts with punitive terms for termination, meaning that the sequester falls disproportionally on other suppliers, like Cisco.

On the other hand, he said Cisco is probably benefitting from the upgrade to "4G" on U.S. wireless networks, which feeds a need for more routers.

Investors appear to be taking the latest soft patch in stride. Cisco's stock is now trading at its highest levels in two years. It's up more than 7 percent since the start of the year.

Chambers, 63, is one of Silicon Valley's longest-serving CEOs. He's nearing retirement and looking to hand the reins over to a successor in two to four years. There are two chief candidates: Rob Lloyd, the head of sales and product development, and Gary Moore, the chief operating officer.

WHY IT MATTERS: Cisco, based in San Jose, Calif., is one of the largest technology companies. Its wide reach and sensitivity to business and government investment cycles make it something of an economic bellwether. It's a component of the Dow Jones industrial average.

WHAT'S EXPECTED: Analysts polled by FactSet expect Cisco to report earnings of 49 cents per share, excluding items and the cost of stock-based compensation. That's in the middle of the company's own guidance of 48 to 50 cents.

Analysts expect revenue of $12.18 billion, also close to the middle of the company's own estimate of $12.05 billion to $12.28 billion.

Analyst Rohit Chopra at Wedbush Morgan said that the current average analyst estimate likely doesn't take into account the weakness in the network sector revealed in reports from other companies, and the market probably expects lower numbers.

Cisco usually provides an outlook for the new quarter. Analysts on average expect earnings of 51 cents per share on $12.49 billion in revenue.

LAST YEAR'S QUARTER: Cisco reported net income of $2.2 billion, or 40 cents per share, on revenue of $11.6 billion.