Pulse: Cisco Raises Concerns for Other Networking Stocks

Cisco's(CSCO Quote) acknowledgement today that business slowed during the past month added to a series of downgrades that hit the company this morning, taking the giant networker lower.

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Not surprisingly, the bad news also hit fellow networking company Juniper Networks(JNPR Quote) down.

Cisco CEO John Chambers told a Morgan Stanley Dean Witter conference this morning that business from both business and service provider customers slowed in mid-December.

Investors reacted to the news by taking Cisco down, $3, or 8.1%, to $34.13 in recent trading. And you can guess that analysts will be active. They already were this morning, when CIBC World Markets analyst Steve Kammen downgraded Cisco to hold from buy. He predicted that the ongoing telecom shakeout would cause the world's largest computer networking company to lower its revenue estimates in the coming months.

Net/Tech Indices INDEX CHANGE % VALUE TSC Internet 11.17 +3.61% 320.71 TSC E-Commerce 0.31 +1.67% 18.91 TSC E-Finance 2.27 +7.30% 33.23 Nasdaq 27.5 +1.13% 2468.8

Kammen's thesis was that Cisco's "integrated bundles" of networking products would have difficulty winning against new competitors that are invading its space with new, interoperable equipment.

Cisco's reduced prospects would also impact high-flying Juniper's growth, Kammen wrote. He also reduced his rating on Juniper -- to buy from strong buy. He praised the company's fundamentals, but said the stock would react to the expected weakening marketplace. In recent trading Juniper's stock was falling, off $3.37, or 2.9%, to $113.82. It is still highly valued by investors, trading at 143 times 2001 earnings.

The news also took down battered Foundry Networks (FDRY Quote). Shares of the manufacturer of network switches and routers lost 57.5% in one day last month after it warned that fourth-quarter revenues would be weaker than expected.

Foundry is now trading at less than a quarter of its price level of just one month ago. It's also been hit with a slew of investors' lawsuits over the past two weeks about the drop in stock price. It is currently trading near a 52-week low of $10.50, off 7.7%.

Other network companies were beating the bad news, though. Avici (AVCI Quote), which went public last year, was moving higher today, trading up $1.86, or 7.2%, to $28.06. Avici announced on Monday that it has a new routing product that will allow it to enter the high-speed access market.

Today's rise extended a 32% gain for Avici that took the stock higher on Tuesday, when investors learned that AT&T had adopted some of its routers for the telecom giant's Internet backbone network.

In a note this morning on Avici, UBS Warburg analyst Nikos Theodosopolus wrote that in selling to AT&T, Avici was moving into territory largely held by industry leaders Cisco and Juniper. Redback Networks(RBAK Quote) also gained today. And analysts issued conflicting reports today about the company's prospects. Kammen downgraded the stock, saying one of its core businesses -- subscriber management for telecoms selling DSL -- faces tough competition. But Robinson Stephens analyst Paul Johnson, in a note upgrading Redback, predicted the company was likely to beat expectations when it reports earnings next week. Redback was trading up $3.19, or 9%, to $38.42.

And as this fourth-quarter earnings season kicks off, all eyes will be scrutinizing each corporate earnings report to find out how the most recent quarter fared and to get a glimpse of what coming quarters should hold.