Soft Sales Sack Cisco

CFO Dennis Powell said he expects margins to be in the 67% range for the third quarter.

Tuesday's report comes at the end of a torpid trading day in which Wall Street sat on its hands hoping for good news from the longtime tech bellwether.

Cisco investors have been showing a bit of a confidence problem lately. Shares in the company fell within a few thin dimes of a 52-week low last week despite signs that sales for the fiscal second quarter were keeping pace with expectations.

The Internet-gear maker increasingly finds itself slugging it out on pricing against rivals like Juniper (JNPR). All that jostling from bargain-hunting equipment shoppers has mussed Cisco's golden gross margins, and now the Street fears that profits won't be as handsome as fans might like.

"Their accounts receivables were up, which is not good, and inventories rose, which is not good for the semiconductor makers," said one hedge fund manager who has no position in Cisco but is short other tech names. "This will cap tech, unless Dell (DELL) can bail it out on Thursday." Dell is due to post quarterly numbers after the close then.

Not everyone was running for the hills, though. "The numbers were soft, but not a disaster," said another money manager who has no position in Cisco.

Cisco also said in Tuesday's press release that it spent $2.7 billion during the latest quarter buying back its stock. The company paid an average of $19.30 apiece for 140 million shares.

The buyback helped shrink Cisco's cash pile to a mere $16.5 billion from more than $20 billion a year ago. To date, the networking-gear maker has spent $23 billion on its three-year-old stock-repurchase plan.

In postclose action, Cisco dropped 37 cents to $17.87.

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