NEW YORK (TheStreet) -- Cisco's (CSCO) recent struggles have called into question what constitutes a tech bellwether, with some observers arguing that the company's recent results are no longer a strong indicator of economic growth.
Investors are certainly spooked by Cisco's problems. Shares of the networking behemoth are down more than 33% over the last 12 months, while consumer giant Apple (APPL), not always perceived as a bellwether for the broader expanse of the tech market, is up almost 38%.
Is it time for the tech sector to rethink its criteria for bellwether status?
Webster's dictionary defines a bellwether as "anything suggesting the general tendency or direction of events, style, etc." That's a broad description that could be applied to a host of tech companies, including Cisco, Apple, Intel (INTC), IBM (IBM), Oracle (ORCL) and Google (GOOG).For Brian Marshall, an analyst at Gleacher & Company, bellwether status is dictated primarily by a firm's impact on its industry, although other factors such as company size, innovation and ability to tap into key market trends are also important. "Apple is the gold standard for a tech bellwether in terms of innovation, absolute size, absolute revenue levels, profitability and plenty of runway ahead," said Marshall, in an email to TheStreet. "Cisco, on the other hand, is what you don't want from a tech bellwether -- huge share of total available market, looking for growth in lower margin segments, getting attacked by competition." For others, indicator-status depends on a more specific equation. "Within tech, I'd argue that those companies participating in the major sub-sectors (for example, semis, software, networking, servers, services, handsets etc.) that are on the attractive side of the 80/20 rule [whereby 80% of a market is dominated by 20% of the players] are the bellwethers," said Paul Mansky, an analyst at Canaccord Genuity, in an email. "Cisco's recent challenges notwithstanding, [it] certainly remains squarely within that definition." Other analysts agree. "Anytime that a company struggles, people think that that's a long-term trend and they don't want to use it as a barometer for tech anymore," said Brian White, an analyst at Ticonderoga Securities. "[But] just because Cisco has had two bad quarters doesn't mean that they are not a big part of the tech puzzle -- they have been around for 20 years, they dominate their industry and they have around 70% market share."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
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.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
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.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV