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Cisco Could Lag Peers as Economy Rebounds

There are also reasons to pause before buying. Cisco shares offer a stable investment, but gains might lag those of competitors.

As the economy improves, demand for tech equipment and software will increase in North America and Europe. However, the most explosive growth will come from emerging markets such as India and China.

Cisco generates about 80% of its revenue from North America, Europe and Japan. Emerging economies account for only 9.6% of the company's revenue. This suggests that Cisco is at an immediate disadvantage based on its regional focus.

Compared with rival 3Com (COMS), Cisco's regional breakdown looks painfully conservative. 3Com generates about 50% of its sales in China, while North America accounts for 18%. 3Com is more aligned with the world's hot growth areas, putting it a better position to benefit when the economy rebounds.

Determining a company's regional focus is an important step in forecasting performance. Cisco stock is trading at bargain prices, but the company might lack the right mix for the shares to soar during the recovery.

-- Reported by David MacDougall in Boston.

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Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.
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