Cisco Plunges as Shortfall Rumors Fly

Cisco (CSCO) slid 12% Friday amid persistent rumors that the networking gear maker is preparing to warn, as early as today, that it won't meet Wall Street's sales and profit expectations for its fiscal second quarter.

Rumors Aplenty Cisco's unpleasant Friday

After rallying sharply following Wednesday's surprise Federal Reserve rate cut, Cisco shares plunged $4.81, or 12%, to $37.06 Friday. More than 105 million shares traded, nearly doubling average daily volume and making the stock the Nasdaq's most active issue.

Cisco watchers have been anxious that the other shoe is falling on the telecommunications industry spending picture. Recent reports have shown evidence of slower corporate information technology spending, meaning big companies are shelling out less to build and upgrade internal communications networks. Cisco and other communications equipment makers are already seeing slowing spending from customers that buy gear for their phone and Internet networks.

Cisco is expected to report second-quarter earnings Feb. 6. Analysts polled by First Call/Thomson Financial expect it to earn 19 cents a share. Cisco is targeting second-quarter revenue in a range as high as $7.38 billion.

Adding to the buzz Friday were rumors surrounding the company's monthly board meeting, typically held on the first Tuesday of each month. Cisco officials were unavailable to comment Friday afternoon on the rumors or on the slated board meeting.

"I don't think it is true," a Cisco bull who owns a substantial position in the stock said of the preannouncement speculation. "But rumor has it they will prerelease after the close today. I have heard it from three different people and from the trading desks."

A Cisco preannouncement would be practically unprecedented: The company has beaten the Street's profit expectations for every quarter in at least the last two years.

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