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Cisco Trips Over Two Troubling Trends

NEW YORK, ( TheStreet) -- Once again, networking gearmaker Cisco (CSCO - Get Report) was blindsided by an unforeseen drop in demand as cash-strapped customers slashed spending.
Cisco
Cisco CEO John Chambers

But the impact shouldn't be too surprising given the broader trends that have been developing for the past several months.

Who hasn't noticed that European governments along with U.S. states and cities have been crushed by budget shortfalls? And who hasn't been listening to cable companies cry about losing customers to satellite and Internet video?

After noting a $500 million shortfall in orders in the October quarter, Cisco cut its full year sales forecast $1 billion below estimates Wednesday.


CEO John Chambers called the rash of order cancellations "air pockets." Investors called it a time to grab the parachutes. Cisco shares are down 17% in premarket trading Thursday in the wake of the company's grim outlook.

Cisco's lowered sales target presumes that the weak demand will be short term and regain some health later in the year.

That is the troubling part, since the trends that are now impacting Cisco's top line - cuts in government spending and an alarming lack of demand for cable set-top boxes -- are not likely to improve very soon.

And the notion that this is a problem specific to Cisco doesn't seem to be holding much water. Shares of gear peers Alcatel-Lucent (ALU - Get Report) and Juniper (JNPR - Get Report) dropped 5% and 7% in premarket trading Thursday.

--Written by Scott Moritz in New York.

>To contact this writer, click here: Scott Moritz, or email: scott.moritz@thestreet.com.

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