Tech stocks take a hit as Cisco falls

By Reuters
Updated: 09:34 EDT, 11 November 2010

Cisco Systems gave a dismal revenue outlook, stunning investors who had hoped for proof of a recovery in technology spending, and sending major tech stocks falling.

The Cisco kit: The world's top manufacturer of routers and switches forecast

Forecasts for quarterly and yearly revenue fell far short of Wall Street's expectations, a big disappointment for a company known for solid management and seen as a top beneficiary of the surge in global wireless and Internet traffic.

Cisco shares tumbled 13% after-hours.

John Chambers, one of the longest-serving CEOs in Silicon Valley whose views on economic trends are well regarded, cautioned of 'short-term challenges' in Europe and public sector spending, as well as weakness among its most important customer segment: service providers.

'First of all, our view on this guidance is, we are disappointed,' he said. 'We are obviously not projecting growth as fast as we would like over the next several quarters,' Chambers told analysts on a conference call.

The world's top manufacturer of routers and switches forecast revenue growth of 9-12% in fiscal 2011, well below the 13.1% analysts had expected on average.

A projection for 3-5% revenue growth in the fiscal second quarter - the current period - also fell far short of Wall Street's expectations for 13%.

The shaky outlook, at a time investors had held out hope that the worst of the tech-sector downturn was behind them, sent shares in fellow industry heavyweights down in extended trading.

Shares in Microsoft Corp, IBM, Oracle Corp and Intel all fell around 1% to 2%.

In London, fallers in the IT sector included Trakm8 Holdings down 13% to 10p, Imagination Technologies down 2.2% to 400.4p, Focus Solutions down 3.6% to 127.7p, and Sage Group down 1% to 269.5p.

Cisco is one of the technology sector's prime bellwethers due to its broad, global operations. And its fiscal first quarter runs through late October, later than many peers, offering a more up-to-date indicator of industry trends.

But analysts were uncertain whether weak guidance, which Chambers blamed on slow orders from public sector clients and service providers as well as weakness in Europe, necessarily meant conditions for its technology peers and rivals had similarly worsened.

'The question is, given the very weak guidance, whether this is very company-specific or whether this is macro, environmental. We're just not seeing this kind of weakness at any other company,' said Jefferies & Co analyst William Choi.

Cisco may be an exception because of its high exposure to public sector clients, many of whom are worried about debt. He also said earlier supply shortages in the technology sector may have generated double orders that were later canceled.

'They're a well run company, well respected - they typically set guidance and meet. For them to guide down like this is puzzling,' said Choi.