Should Mark Hurd Run Cisco?

Concern over the economic recovery continues after last week’s employment report and this week’s signals of global weakness. This week, Cisco (NASDAQ:CSCO) reported a mixed fourth quarter that missed the average sales estimate. Its weak first quarter sales forecast also missed estimates as CEO John Chambers warned of a slower economic recovery. Last month, Juniper’s (NYSE:JNPR) modest earnings guidance also missed estimates. Meanwhile, acquisitions continued at both Cisco and Juniper. Let’s take a closer look.

Juniper reported second quarter revenue of $978 million, up 24% and above analyst estimates of $$954 million. Net income was $130 million, or $0.24 per share, versus $14.77 million or $0.03 per share last year. The company ended the quarter with nearly $2.7 billion in total cash and investments after repurchasing shares for about $177 million. Q1 analysis is available here.

For the fourth quarter, Juniper expects revenue of $1.02 billion, plus or minus $20 million, and non-GAAP EPS of $0.30 to $0.32. Analysts expect EPS of $0.31 on revenue of $993 million. The stock is trading around $28 with market cap of about $14.5 billion. It hit a 52-week high of $31.87 on April 7 and a 52-week low of $23.03 on June 29.

Cisco reported fourth quarter revenue of $10.8 billion, up 27%, narrowly missing analyst estimates of $10.9 billion. Net income was up 79% to $1.94 billion or $0.33 per share versus $1.08 billion or $0.19 per share last year. Adjusted EPS was $0.43, beating analyst estimates of $0.32. Q3 analysis is available here.

Cisco repurchased shares for $2.3 billion during the quarter. The company ended the year with a cash balance of $39.9 billion, compared with $39.1 billion last quarter. During the year, Cisco’s major acquisition was the $3.4 billion acquisition of video conferencing player Tandberg. Including the Tandberg acquisition, Cisco’s TelePresence business experienced 40% growth with total products and service orders of approximately $370 million.

Excluding acquisitions, Cisco hired 2,000 workers last quarter and expects to add 3,000 more jobs. I am not sure why Cisco needs so many people, especially when the HP–3Com strategy is to undercut Cisco in its core business using their China cost structure. John Chambers may be very interested in contributing to the U.S. recovery by hiring some people, but doing so artificially seems suicidal to me. I wonder, now that Mark Hurd has been let go from HP for somewhat murky reasons, would the Cisco board try to hire him to shave off some of Cisco’s fat?

Full-year 2010 revenue increased 11% to $40 billion, and net income was $7.8 billion or $1.33 per share, up 27%. For the first quarter, Cisco expects revenue to grow 18% to 20% to $10.64 to $10.83 billion, missing the average analyst estimate of $10.95 billion. The stock is trading around $23 with a market cap of about $135 billion. It hit a 52-week high of $27.74 on April 30 and a 52-week low of $20.93 on July 1.

As for more recent acquisitions, in May Cisco acquired CoreOptics, a designer of digital signal processing (DSP) solutions for high-speed optical networking applications. This $99 million acquisition was made to expand the company’s European presence in optical networking.

It also acquired MOTO Development Group, a design consulting firm that helped it develop the Flip video camera. It earlier acquired video solutions developer Pure Digital, which makes the camera.

Both Cisco and Juniper have their eyes on the convergence device industry. In June, Cisco launched its Android-based tablet Cisco Cius, a mobile collaboration business tablet designed to deliver virtual desktop integration with anywhere, anytime access. Personally, I disagree with this acquisition; it is far from Cisco’s core DNA.

Juniper acquired SMobile Systems, a developer of security software for smartphones and tablets, for $70 million. HP recently acquired Palm and stalled its tablet plans to include Palm’s Web OS. HP has been making acquisitions, such as the 3Com deal, that have intensified the competition for Cisco. I suggested earlier that acquiring Polycom would only increase the pressure.

With Mark Hurd out of HP, the equation again could be favoring Cisco, especially if the latter manages to lure him in to clean the company up.