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Succession Questions Answered, Cisco Looks Stronger in Q3

Just watch out for those currency effects.

Ken Wolter / Shutterstock

When networking and IT giant Cisco Systems reports its third-quarter earnings on Wednesday, it will be the last time that its longtime CEO John Chambers will preside over the conference calls, ending a managerial run that has lasted more than 20 years.

Cisco named Chambers’ successor, Chuck Robbins, last week. Robbins will take over as CEO in July while Chambers will remain as executive chairman.

The management shift comes as Cisco appears to be recovering from some rough seas brought on by difficulties in global markets and a strong U.S. dollar. Analysts surveyed by Thomson Reuters expect Cisco to post earnings of 53 cents a share on revenue of $12.1 billion and to offer fourth-quarter guidance for a per-share profit of 56 cents on sales of $12.6 billion.

Amitabh Passi, an analyst with UBS Securities, in a note to clients Monday says the second half of the year tends to be seasonally stronger for Cisco than the first. A deal with Verizon under which Cisco will supply equipment for an optical network should provide some momentum to the sales line.

Currency worries will still be present, however. When the U.S. dollar is strong versus other global currencies, especially the euro and the Japanese yen, U.S.-based companies tend to suffer when they convert those currencies back to dollars. In Cisco’s case it’s a little more complicated. It sells 95 percent of its products in dollars, but may have to adjust its prices to offset the swing in exchange rates. If demand in those markets recovers — Europe has been weak for the last several quarters — it might add to the currency worries.

One interesting line item to watch for will be recurring revenue. Passi says that Cisco is selling more products on a subscription basis, which could over time create a more stable revenue picture. Right now subscriptions account for about $2 billion annually, or about 4 percent of expected 2015 revenue, but are growing at about 20 percent a year.

This article originally appeared on Recode.net.

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