Shares of the networking gearmaker took a little break this week from a long, galloping downward path that has knocked a quarter off the company's value this year.
Cisco's dramatic swoon predated the global financial worries that caused a broader market fall in recent months. But getting a jump on the tech selloff trend has put Cisco in an oddly favorable position, say some investors.
"The tougher the market, the better Cisco looks, because people already hate it," said Dan Niles of Alpha One Capital.Cisco's turmoil started late last year as education and government customers ran out of tech dollars in their budgets. The spending slowdown took a heavy toll as the company issued three sequential forecast disappointments, shut down its Flip video camera business and warned of an upcoming round of layoffs. Analysts weighed in with downgrades, criticizing Cisco for straying off course into consumer electronics and the data center market. "Cisco went on a long and costly crusade while not protecting its home turf of switching and routing," wrote RBC analyst Mark Sue in a research note earlier this month. And while Cisco chief John Chambers has taken the heat and claimed some of the responsibility for the distractions along the way, it's starting to look like bigger issues may have played a role in Cisco's downturn. So what's really eating Cisco? Basically, said Niles, it's the same challenges that the rest of the networking sector faces: A weak macro economy continues to pinch spending, federal stimulus money is going away and the rise of cloud computing hasn't been all positive. Moving the IT nerve centers out of office buildings and into centralized server farms, while efficient for companies, is corrosive to hardware sales. Instead of selling a company 10 pieces of equipment for their office computer network, Cisco's selling about two pieces of data center hardware. "Cloud computing just means you have to buy less stuff," said Niles. The bigger issue is that people are starting to figure out now that the problem is not Cisco-specific."
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
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
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
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 + 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