Cisco's Unified Computing System is generating a lot of interest but little sales to date, according to a bulletin form Oppenheimer & Co. on Cisco's upcoming quarterly results. In interviews with 30 channel partners in the US and Europe, Oppenheimer found that interest in UCS is strong but that sales are hampered by immaturity and a dearth of applications.
In his bulletin, Oppenheimer & Co. analyst Ittai Kidron states:
Our checks suggest UCS interest is strong and the number of production networks is rising. That said, we believe the lack of extensive application support is keeping some waiting for V2.0 before adopting. 70%+ of qualified respondents look for moderate UCS adoption in 2010.Z
Nonetheless, Oppenheimer sees overall sales in Cisco's January quarter tracking ahead of expectations thanks to improved spending and the resumption of postponed projects. The firm also notes that Cisco is building a strong pipeline and backlog for the April quarter.
Thirty-six percent of the 30 channel partners interviewed by Oppenheimer expect better than 5% sequential sales growth for Cisco while another 43% expect growth of 1% to 5%. Seventy-six percent of those queried expect sales in the April quarter to exceed the 1% sequential growth consensus.
As far as supply constraints causing shipment delays, the channel expects shortages to ease this calendar quarter, leading to a strong April quarter for Cisco, Kidron states. Cisco is experiencing a supply chain challenged to meet demand for product, leading to shortages of product by up to 60 days, according to Oppenheimer.
Our March-quarter analysis points to an average QoQ sales growth of 4% for supply-chain companies highly levered toward Cisco vs. negative 4% for others.
And those two big acquisitions back in October -- $3.4 billion for Tandberg and $2.9 billion for Starent Networks - could boost annual revenue growth rates by 3% to 4% this year, Kidron reports. As a result, he's raised his stock price target to $29 from $27.