Cisco's Skid a Prelude to Tech's Slide

NEW YORK (TheStreet) -- Cisco (CSCO), the despised, misstepping, serial disappointer, may have finally reached the bottom of its disfavor on Wall Street.

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."

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