This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Cisco's Long-Term Outlook Worries Investors

Stocks in this article: CSCO

Cisco share story updated with additional analyst comment.

SAN JOSE, Calif. ( TheStreet) -- Cisco's (CSCO) first-quarter results, released after market close on Wednesday, sent tech stocks plunging and have raised questions about the company's long-term growth potential.

The networking giant beat Wall Street's first-quarter earnings estimate, and edged analysts' revenue forecast, but weak guidance hammered the company's shares in after-hours trading.

Cisco CEO John Chambers

Cisco's stock plummeted more than 13% shortly after its results came out, hitting $21.15, and fell even further to $20.50 at market open. The plunge was the company's worst post-earnings drop since 1994, according to Birinyi Associates, and left some analysts questioning the firm's long-term strategy.

"Our view remains that Cisco's growth drivers at this point in its life cycle are more cyclical than secular, and with the cyclical refresh in networking now largely behind us it is difficult for the company to grow," noted Simona Jankowski, an analyst at Goldman Sachs, in a note released on Thursday.

Jankowski, who lowered her 12-month Cisco price target from $25 to $23, believes that the push towards cloud computing also presents a big challenge to the networking firm. "CIOs' preference for best-of-breed vendors in the move to cloud is putting competitive pressure on integrated IT vendors such as Cisco," she explained, adding that this could be highly disruptive for Cisco's core switching business.

In addition to the tepid guidance, comments from Cisco CEO John Chambers clearly spooked investors, particularly given the company's status as a tech bellwether. For the second straight quarter, the networking giant gave a cautious economic outlook as Cisco noted that first-quarter orders were $500 million below forecast.

Despite plenty of analyst love prior to earnings, Cisco felt the impact of public sector weakness, both in the U.S. and overseas. Speaking during a conference call after market close, Chambers cited a "dramatic" slowdown in U.S. state government spending, as well as softness in parts of Europe and Japan.

"We hit some air pockets this quarter," explained the Cisco chief. "We think that some of the challenges in public sector spending will be with us for a couple of quarters."

Service providers were also problematic, with U.S. orders declining 2% during the quarter. Cisco's North American cable business, in particular, is feeling the effects of tight consumer spending and the slowdown in home building, according to Chambers.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,906.42 +101.62 0.57%
S&P 500 2,073.62 +2.97 0.14%
NASDAQ 4,773.5410 +8.1610 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs