Recession ? What recession? For three quarters straight, Cisco Systems (NASDAQ:CSCO) has trounced Wall Street's earnings expectations. The firm hasn't missed an earnings target for ... well, for at least as long as Earnings.com has been tracking such things. But will events catch up with this tech bellwether when it reports its fiscal second-quarter 2009 numbers Wednesday afternoon?

What analysts say

  • Buy, sell or waffle? Twenty-nine analysts split down the middle on Cisco: 14 buy ratings, 15 holds.
  • Revenues. On average, they expect to see sales drop 8% to $9.01 billion.
  • Earnings. While profits are predicted to plunge 21% to $0.30 per share.

What management says
Sales down 8%? Profits, 21%? That hardly sounds like the double-digit growth that Cisco promised us in the past. But in the midst of what CEO John Chambers modestly terms: "a very challenging global economy," Cisco's promises have taken a turn to the touchy-feely. In the current business environment, the goal is simply to: "manage and prioritize our resources, invest in innovation, and build even stronger relationships with our customers to help enable their success."

What management does
If I could add one thing to that wish list, it would be this: "Control operating costs." Cisco's gross margins have held up fine so far, but the operating margin is slipping ever closer toward what second-place networking rival Juniper Networks (NASDAQ:JNPR) earns. We're nowhere near Ciena’s (NASDAQ:CIEN) low margins, but right now, Cisco's heading in the wrong direction.

Margins

7/07

10/07

1/08

4/08

7/08

10/08

Gross

64.0%

64.0%

64.2%

64.4%

64.5%

64.6%

Operating

24.9%

25.0%

24.8%

24.1%

24.0%

23.7%

Net

21.0%

21.9%

21.4%

20.6%

20.4%

20.0%

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.

One Fool says
And as I argued early last month, the firm's foray into consumer electronics -- in the middle of a consumer-led recession, no less -- may not be the best way to get profits pumping again.

Sure, I understand that tech "convergence" is all the rage. Phone companies Verizon (NYSE:VZ) and AT&T (NYSE:T) are offering television service. Cable TV providers Cox and Comcast (NASDAQ:CMCSA) will gladly hook you up with a phone. And Apple (NASDAQ:AAPL) wants to be everything to everybody.

Long term , Cisco has to play this trend toward telecom convergence just like everybody else, and introducing consumer products like its new Wireless Home Audio System could -- eventually -- secure Cisco a seat in your living room. But right now, in the middle of the recession, it feels like Cisco pulled the trigger too soon.

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Fool contributor Rich Smith does not own shares of any company named above. Apple is a Motley Fool Stock Advisor pick. The Motley Fool has a disclosure policy.