Next up in the earnings parade: tech titan Cisco Systems (NASDAQ:CSCO). The company reports its fiscal Q2 2006 numbers tomorrow after close of trading.

Wall Street Wisdom:

  • General consensus. Three, count 'em, three dozen analysts spend their waking hours tracking Cisco's movements. Out of all these learned souls, only two rate the company a sell. Eight hedge their bets with hold ratings, and everyone else says buy.
  • Revenues. Analysts believe that in Q2 2006, Cisco grew its revenues by 9% year over year.
  • Earnings. Cisco's profits are expected to come in even stronger, at $0.25 per share, a 14% year-over-year increase.

Margin watch:
Cisco's gross margins have been on a long, slow slide over the past 18 months. But until last quarter, the company's operating and net margins had been moving in the opposite direction. Was the Q1 performance just a bump on the Information Superhighway, or the first sign of Cisco's net margin joining its gross margin's slide?

Margins %

6/04

10/04

1/05

4/05

7/05

10/05

Gross

68.6

68.2

67.8

67.3

67.2

67.2

Op.

28.6

29.1

29.6

30

3

28.6

Net

20

20.6

22.8

23.1

23.1

22.1
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
Analysts have been suggesting that the most important data we'll receive on Cisco tomorrow will regard its revenue growth. As a result of the company's strong net margin, even a small improvement in sales will drop heaps of extra pennies to the bottom line. Analysts suggest that a desire to boost revenues was the real motivation for the company's recently announced buyout of DVR- and cable-box-maker Scientific-Atlanta (NYSE:SFA). On that last point, I beg to differ.

For one thing, Scientific-Atlanta isn't likely to improve Cisco's revenue growth much. The two companies both tend to grow their sales in the 10%-12% range year over year. Moreover, Scientific-Atlanta's annual sales amount to less than 10% of Cisco's. Scientific-Atlanta also makes much less money from its sales, with its net margin averaging about half of Cisco's over the past couple of years. Don't get me wrong; Scientific-Atlanta is a fine and profitable business -- but a growth driver for Cisco? Not likely.

Fool contributor Rich Smith does not own shares of either company named above.