Routine Cisco Statement Spooks Traders

Even though it's been said before, the company's statement had a very different effect this time.
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Updated from 9:56 a.m. EST

A seemingly innocuous statement in a routine 10-Q filing spooked the stock of

Cisco Systems

(CSCO) - Get Report

Wednesday.

The quarterly report, filed late Tuesday with the

Securities and Exchange Commission

, repeated a similar sentence the company has used in its past two 10-Q filings: "We expect that in the future, our net sales may grow at a slower rate than experienced in previous periods, and that on a quarter-to-quarter basis, our growth in net sales may be significantly lower than our historical quarterly growth rate."

Cisco: Join the discussion on

TSC

Message Boards. But the sentence had a very different effect this morning. Shares of the San Jose, Calif.-based Internet equipment maker fell more than 3% when the stock market opened on fears that the statement translated to an earnings warning. The move is in stark contrast to the stock's 145.6% run-up in the past year and the market's reaction after the same information was disclosed in March and June.

A day after the June 15 filing, Cisco shares rose 4.5%, and a day after the March 9 filing, the stock was virtually unchanged.

The stock continued to tumble after Wednesday's announcement and closed at 95 7/8, down 2 1/16 or 2%, recovering slightly from the session low of 93.

There have indeed been concerns that Cisco's sales could slow if companies refrain from spending this quarter because of possible Y2K computer glitches. As he had said in previous conference calls, including the company's first-quarter earnings call on Nov. 9, John Chambers, Cisco's president and chief executive, said, "We really don't know the impact of Y2K until we are going to be well into the

second quarter," which ends for Cisco in mid to late January.

Still, analysts downplayed the importance of Cisco's filing, explaining the statement was taken out of context. "We think this was improperly analyzed," said analyst Nikos Theodosopoulos of

Warburg Dillon Read

. "These are boilerplate statements that have appeared in the company's filings before." Theodosopoulos rates Cisco a buy, and his firm has not done any underwriting for the company.

"They tend to be cautious in their guidance," noted analyst Patrick Dunkerley of

Securities Corp. of Iowa

. "Cisco is so dominant in what they do. I don't see sales slowing down unless the Internet is slowing down." Dunkerley rates Cisco a strong buy and his firm has not participated in any underwriting for the company.

In fact, most companies tend to be cautious in their SEC filings. "If you read all the risk factors for these companies in these filings, you probably wouldn't invest in anything," said Megan Graham-Hackett, an analyst at

Standard & Poor's Equity

. "There are risks associated with Cisco, but nothing unusually new and nothing specific to the company, except that it's one of the most aggressive with regard to acquisitions."

She added that because the company has made so many acquisitions -- 15 in 1999 alone, according to information on the company's Web site -- it is one of the best executors of acquisitions and is very disciplined in its accounting, with a long paper trail that could bear the brunt of any scrutiny. Graham-Hackett rates Cisco a buy. Her firm does not participate in underwriting.

For the first quarter of fiscal 2000, Cisco's net sales rose 50% to $3.9 billion, from $2.6 billion in the first quarter of fiscal 1999.