Cisco Spooks the Street: Weekly Tech Recap

NEW YORK ( TheStreet) -- Following its initial post of what looked like a solid second-quarter earnings beat Wednesday afternoon, Cisco ( CSCO) ended up with a repeat of last quarter: Its report of weak consumer and government spending as well as its uberconservative guidance dismayed Wall Street and sent its stock plummeting.

Cisco shares closed down more than 15% for the week at $18.70; not helping was a fresh round of analyst downgrades that hit Friday. Cisco also announced the departure of its consumer business head, Jonathan Kaplan. Kaplan was the former CEO of video cam maker Pure Digital, which Cisco bought in 2009 as a way to make inroads into the consumer space.
Cisco announces its second-quarter results next week

Cisco beat consensus revenue and EPS estimates of 35 cents on sales of $10.24 billion, citing 37 cents on revenue of $10.4 billion. But the company also posted a lower-than-expected gross margin (62.4% vs. the 63.3% analysts wanted to see) and low year-over-year guidance. Cisco blamed spotty government spending as well as the slowdown in cable set-top box sales, but reiterated its "winning strategy" Thursday morning in an interview with TheStreet.

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The long-awaited Verizon ( VZ) iPhone launched for the general public Thursday, hitting Verizon and Apple ( AAPL) store shelves at 7 a.m. While not a lot of tech watchers doubt the success of an iPhone selling at the nation's No. 1 wireless shop -- sales numbers reportedly hit 500,000 the first day of presales -- lines outside stores Thursday morning were spare across the country.

Samplings were small and casual, but reports from TheStreet and analyst firms noted some interesting patterns: Many of the Verizon iPhone buyers were already Verizon subscribers, many were switching from Research In Motion's ( RIMM) BlackBerry devices and only a small percentage were switching from AT&T ( T).

Most of us expect Apple to release the faster, 4G-compatible iPhone 5 sometime this summer -- a phone that a small portion of TheStreet readers say they're waiting for.

The world's largest phone shop, Nokia ( NOK), outlined its new smartphone plan Friday, a blueprint intended to show how the Finnish giant will catch up with market leaders Apple and Google ( GOOG) Android.

Nokia, which dominates the low-end cell phone market overseas but has failed to carve a niche in the smartphone big leagues, said it would use Microsoft's ( MSFT) Windows Phone 7 operating system to build its next-generation superphones.

Investors didn't exactly applaud Nokia's move. Nokia shares, which fell 8% Thursday on early reports of the Microsoft shift, dropped almost 14% Friday on concerns that it will be a long, risky transition to the new Microsoft ecosystem.

It was a tough week for non-Verizon iPhone device debuts, but Sprint ( MSFT) showed off the new, dual-screen touchscreen Echo phone at a splashy press event Monday.

The phone's "simultasking" dual screens combine to form a 4.7-inch screen. The phone is powered by version 2.2 of Android and, priced at $199.99 after a mail-in rebate, will be available in the spring.

HP ( HPQ) also unveiled new products, two smartphones and a 9.7-inch screen tablet, the TouchPad. All of the new devices run the company's PalmOS, which HP bought last year. The TouchPad, aimed for business users, has a 1.3-megapixel front-facing camera, runs on Qualcomm's ( QCOM) Snapdragon dual-CPU processor and will be available with either 16 GB or 32 GB of storage.

In tech earnings, video game firm Activision Blizzard ( ATVI), publisher of the sales record-setting Call of Duty franchise, reported juicy sales but weak guidance, which sent the company's shares down more than 8% for the week. Activision also announced that it was shutting down Guitar Hero, the once wildly popular game title that saw sales peak in 2008.

Managed hosting specialists Rackspace ( RAX) brought in revenue of $214.7 million, a 27% hike on the prior year's quarter. Analysts surveyed by Thomson Reuters had predicted sales of $210.06 million.

Security software firm McAfee ( MFE), which said it that next week it will unveil more details of its merger with Intel ( INTC), posted record revenue of $550 million, up from $525.7 million in the prior year's quarter and comfortably above analysts' forecast of $545.28 million.

McAfee also earned 67 cents a share, although this was impacted by 2 cents of foreign exchange and premerger costs, up from 64 cents a share in the same period last year. Analysts surveyed by Thomson Reuters had forecast earnings of 69 cents a share.

Tech's Week Ahead

Monday evening, IBM's ( IBM) Watson computer, armed with 15 terabytes of RAM, 2,880 processor cores, 10 racks of IBM Power 750 servers running Linux and allegedly the ability to understand English as it is naturally spoken, will take on two of the winningest champions in a nationally televised round of Jeopardy!.

While the event is sure to stimulate some interesting conversation surrounding computers' encroachment on human intelligence, IBM sees Watson as a business opportunity, a technology that could someday help corporations become more efficient in their retrieval and digestion of data.

IBM's Watson will play two full games of Jeopardy! in three episodes, which air Monday, Tuesday and Wednesday evening.

--Written by Maggie Overfelt in New York.

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