Is Slower Government Spending to Blame?By Reuters | Print
After Cisco's quarter earnings forecast sent tech stocks tumbling, analysts answered the question of whether the entire tech market recovery is in jeopardy or whether it's a Cisco-only problem.
A disappointing sales forecast and Chambers' warning of "unusual uncertainty" among customers sparked a selloff last quarter, and some analysts said the consecutive quarters of letdowns may mean Cisco is overextending itself.
Some analysts said Cisco's high exposure to the public sector may be working against it. U.S. state and local governments have been cutting spending as tax receipts dry up.
Shares in network equipment rival Juniper Networks (NYSE:JNPR) and International Business Machines Corp (NYSE:IBM), another company with high exposure to government spending, fell 1 percent. Dell Inc (NASDAQ:DELL) shares fell 5 percent.
"I think it's more of a Cisco problem. However I think that their commentary on the state of IT is always important, so you still have to doublecheck your tech holdings in light of what Cisco says," said Fort Pitt Capital Group senior analyst Kim Caughey Forrest. She owns Cisco shares, but said she was not buying more.
Cisco is considered one of the technology sector's bellwethers because of its broad, global operations, and technology stocks often react to the company's financial updates and comments by Chambers.
Since its fiscal first quarter runs through late October, later than many peers, its outlook and comments on recent orders are seen as a more up-to-date indicator of industry trends.
"The interpretation is that if Cisco missed, they may be the bellwether that suggests a trend that may extend into the rest of the quarter," said Keith Wirtz, president and chief investment officer with Fifth Third Asset Management, which holds Cisco shares as part of its $18 billion portfolio.
He said he might buy more stock later this month if the price falls more. Investors had rushed to take profits after a two-month runup in Cisco shares, he said.
"Professional managers are susceptible to any excuse to sell," he said. "I think people are looking for a reason to harvest some of the profits right now."(Reporting by Ritsuko Ando, Additional reporting by Jim Finkle. Editing by Kenneth Li and Robert MacMillan)