After spooking the market for two quarters with cautious forecasts, Cisco Systems Inc must do more than meet or modestly beat analysts' forecasts to win back investor confidence.

Investors want Chief Executive John Chambers to show the network equipment maker is gaining stability, and fighting off rivals like Hewlett-Packard Co while winning orders for routers and switches despite budget cuts among public sector clients.

Analysts and investors told Reuters they realize achieving all of that may be difficult. However, most were cautious about the quarterly report, due after the market closes on Wednesday, given a fragile recovery in both the U.S. and European economies.

Yet options players traded heavily in Cisco shares this week, showing some were betting the report would lift shares. Some analysts said good news could come in the form of a high dividend, since Chambers has promised a dividend in fiscal 2011, which ends in July, of around 1 to 2 percent.

After closing down 0.2 percent at $21.99 on Tuesday, Cisco shares are still down 10 percent from November 10 when it announced a weak outlook and stoked fears it may be losing market share to competitors like HP and Juniper Networks Inc.

Cisco is one of the technology sector's bellwethers because its customers are broad-based, ranging from small businesses to foreign governments. It will report results for the quarter ending in January rather than December like most of its peers, making the numbers a more current indicator of technology spending.

Chambers, one of Silicon Valley's longest-serving executives, is considered a good reader of industry trends. He was one of the first tech executives to flag the impact of the financial meltdown on the sector in late 2007.

He is credited for leading the company's rapid growth through aggressive sales strategies and acquisitions. Since he became CEO in 1995, Cisco has grown from a company with $1.2 billion in annual revenue to around $40 billion.

However, recently disappointing quarterly announcements have raised concerns that while Cisco remains the top manufacturer of routers and switches, its growth may be slowing.

In addition to longtime industry rivals like Juniper and Alcatel-Lucent SA, Cisco faces new ones such as China's Huawei Technologies Co Ltd and HP.

Cisco and HP were former resale partners, but turned rivals after Cisco in 2009 unveiled plans to enter HP's territory of data center servers. HP in turn challenged Cisco by buying network equipment maker 3Com for around $3 billion.

Analysts say the increasing competition could be hurting Cisco's gross margins.

Cisco is in somewhat of a defensive position in certain product lines and we've observed some pricing action, said RBC Capital Markets analyst Mark Sue.

Analysts on average expect fiscal second-quarter revenue of around $10.23 billion, up 4 percent year-over-year but down 5 percent sequentially, according to Thomson Reuters I/B/E/S. They forecast quarterly earnings, excluding special items, of 35 cents per share.

They also foresaw third-quarter revenue rising 5 percent from a year earlier to $10.85 billion. (Reporting by Ritsuko Ando; Editing by Bernard Orr)

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