Analyst: Cisco will have to lower prices to achieve turnaround

Not everyone is down on Cisco, despite the networking giant's torturous road to recovery after a string of tough quarters and a stock price hovering near a five-year low.

Sterne Agee analyst Shaw Wu earlier this week said he expects the beleaguered company to complete its turnaround, but he notes that it could take several quarters to achieve.

And, he isn't one of the pundits calling for CEO John Chambers' head.

"From an investor standpoint, most believe that Cisco will be very difficult to turn around and that a management change is needed," Wu wrote. "While we do not believe that John Chambers needs to go, as we believe he has proven to be one of the greatest managers and visionaries of the modern era, we do believe he needs to make bigger moves than what has been done so far."

And, he said, Cisco may have to bite the bullet and lower its prices on its bread and butter, networking gear and switches, which currently demand a premium of 50 to 100 percent. "We believe Cisco will likely need to take the bitter medicine of lower gross margin for longer-term good," he wrote.

Cisco, Wu said, isn't going to achieve its goals overnight, even though Chambers in May vowed to cut $1 billion in expenses from Cisco's bottom line over the next 12 month. He said he'd dump underperforming businesses and products and ax as many jobs as it took to get expenses more in line with revenues. But it will happen, Wu said.

"We believe Cisco is fixable and not structurally flawed, but admit we need to see more dramatic steps be taken," he wrote. "We believe management will make the right moves in restoring investor creditability."

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