-- Cisco's slowdown warning story updated with analysts' comments.
|Cisco CEO John Chambers|
The warning of a renewed spending slowdown crushed Cisco shares and set off alarms across the industry.Tech stocks, aka the Nasdaq, had enjoyed a 15% rise over the past three months as giants like Apple (AAPL) and Google (GOOG) delivered blowout third-quarter sales. But that run looked done Thursday. Some see the stumble one of Cisco's own making. "We believe the order shortfall could be more than the 'air pocket' described by Chambers, and instead could be the first signal that Cisco is losing share in several of its core markets as its focus on growth has diverted attention from its core businesses," Morgan Stanley analyst Ehud Gelblum wrote in a note Thursday. "We can't find one other company -- big or small -- that's seeing similar weakness." Other analysts were more direct and pointed to Cisco lack of leading technology in its main routing and switching business. "The times are changing at the public and enterprise levels," said Telecom Pragmatics analyst Sam Greenholtz. "Wall Street and others might be getting an understanding of the dynamics that are reshaping the network world." Still, Cisco's unusually broad exposure across world economies and its diversity of customers including businesses, schools and governments puts CEO John Chambers in a fairly unique position to comment on order trends. And even though his forecasting skills may be sketchy, his ability to spot the obvious weaknesses tends to inform investors. Shares of Cisco started selling off Wednesday evening and the rush only intensified later sending the stock down 17% Thursday. The bleak macroeconomic picture drawn by Cisco suggests other communications equipment suppliers like Alcatel Lucent (ALU), Juniper (JNPR) and Ciena (CIEN) may also start to see a slide in orders from government customers. Cisco parts suppliers and chipmakers like PMC-Sierra (PMCS), Anadigics (ANAD), Broadcom (BRCM) and Marvell (MRVL) were flagged by analysts as shops that could feel the chain reaction as Cisco gears down production. But probably the worst news from Cisco's conference call was reserved for the cable equipment sector. Cisco noted a 40% year-over-year decline in set-top box sales. Though Chambers alluded to the ongoing slowdown in new home construction and the steady subscriber losses among cable providers, the message was clear: the cable gear sector is in trouble. The closest competitor in set-top boxes is Motorola (MOT), which saw its shares fall 3% in the Cisco aftermath. Other cable equipment suppliers like Arris (ARRS) and Harmonic (HLIT) were down 3% as well, as investors sniffed a spending slowdown in the wind. --Written by Scott Moritz in New York.
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