Cisco Systems (CSCO

) reported 24 cents fourth-quarter earnings per share (GAAP basis). Merrill Lynch trims estimates and keeps a buy rating on the stock.

Analyst Tal Liani says Cisco's fourth-quarter results were in line, but trends are more negative. He notes router sales grew only 2% sequentially and Advanced Technology growth decelerated to 3.3% sequentially. He says gross margin improvement is not sustainable; operating expenditures are expected to grow; and 67% fiscal year 2006 (July) gross margin guidance was cut to 66%-67%, with first-quarter revenue guidance below estimates.

Liani sees a more difficult environment than management is admitting; the main challenge is finding new growth areas for the maturing switches and routers business. He keeps a buy opinion on attractive valuation, strong cash flow, and a commanding position in the market.

He trims $1.03 fiscal year 2006 EPS estimate to $1.02.