Can Cisco Systems (CSCO) stage a comeback?

At first (and probably second and third glances too) that seems a ludicrous question. We’re talking Cisco here. The gorilla so big that other gorillas make room in the bamboo.

But Cisco’s results for the first quarter of fiscal 2011, announced on November 10, have raised that question.

Here’s why—and why the question isn’t foolish.

Cisco reported solid growth for the quarter (19.2%) but a drop in gross margin to 62.8% from 65.3% in the first quarter of fiscal 2010 raised an eyebrow or two. Despite that, the company managed to report earnings of 37 cents a share for the quarter. That was 2 cents a share above analyst expectations.

And then the company raised more eyebrows. For the second quarter of fiscal 2011, the one that ends in January 2011, Cisco slashed its projections for revenue to $10.1 billion to $10.3 billion. Analysts had been projecting $11.08 billion for the quarter. Revenue growth will be just 3% to 5% from the second quarter of fiscal 2010.

The company’s read on all of fiscal 2011, which ends in July 2011, wasn’t much better. For the fiscal year Cisco projected revenue growth of just 9% to 12%. That would put revenue for the year at $43.6 billion to $44.8 billion. Wall Street analysts had been projecting $45.28 billion.

The company blamed the short fall on a slump in government spending on telecommunications and Internet gear and on intense competition in the TV set top box business from Motorola (MOT) and smaller competitors.

But the lowered guidance has apparently fed right into a nagging investor and analyst worry about the direction of Cisco’s business strategy. (Which is why the stock is down almost 17% as I write this at 3:50 New York time.) I’d put the worry like this: Has Cisco, by moving away from its core market of Internet switching and routers to businesses such as set top boxes and servers and teleconferencing sacrificed too much of its core strength?

Investors wouldn’t be asking this question quite so loudly except that Cisco’s smaller and more focused competitors such as F5 Networks (FFIV) are growing much faster than Cisco and aren’t looking for anything like the slowdown that Cisco is projecting. F5 Networks, for example, saw revenue grow by 35% from fiscal 2009 to fiscal 2010 (which ended in September 2010.) Earnings per share in the September 2010 quarter grew by 67%.

Investors have voted with their feet by buying F5 Networks shares—they’re up 128% in 2010 through November 11—and by not buying Cisco shares. They’re down 17% for the year after today’s slide but even before this drop, the shares were down 1% for the year.

I think Cisco has got a tough time ahead of it. Not so much because they need to make wrenching changes in their business as because they’ve got to turn around now skeptical investors. Prove to me, they’ll say, that growth is back. Prove to me that Cisco is still a growth stock. Prove to me that I shouldn’t buy F4 Networks or Aruba Networks (ARUN) instead.

Until Cisco proves that—which will certainly take a good two quarters in my opinion—I’d treat this as a value stock. Analysts were all over themselves cutting price targets today. I’m doing the same. My new target price for Cisco Systems is $25 a share by July 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. The fund did own a position in Cisco Systems as of the end of its September 2010 quarter. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/