Cisco, Apple: Which Is the Bellwether?

NEW YORK ( TheStreet) -- Cisco's ( CSCO) recent struggles have called into question what constitutes a tech bellwether, with some observers arguing that the company's recent results are no longer a strong indicator of economic growth.

Investors are certainly spooked by Cisco's problems. Shares of the networking behemoth are down more than 33% over the last 12 months, while consumer giant Apple ( APPL), not always perceived as a bellwether for the broader expanse of the tech market, is up almost 38%.

Is it time for the tech sector to rethink its criteria for bellwether status?

Webster's dictionary defines a bellwether as "anything suggesting the general tendency or direction of events, style, etc." That's a broad description that could be applied to a host of tech companies, including Cisco, Apple, Intel ( INTC), IBM ( IBM), Oracle ( ORCL) and Google ( GOOG).

For Brian Marshall, an analyst at Gleacher & Company, bellwether status is dictated primarily by a firm's impact on its industry, although other factors such as company size, innovation and ability to tap into key market trends are also important.

"Apple is the gold standard for a tech bellwether in terms of innovation, absolute size, absolute revenue levels, profitability and plenty of runway ahead," said Marshall, in an email to TheStreet. "Cisco, on the other hand, is what you don't want from a tech bellwether -- huge share of total available market, looking for growth in lower margin segments, getting attacked by competition."

For others, indicator-status depends on a more specific equation.

"Within tech, I'd argue that those companies participating in the major sub-sectors (for example, semis, software, networking, servers, services, handsets etc.) that are on the attractive side of the 80/20 rule whereby 80% of a market is dominated by 20% of the players are the bellwethers," said Paul Mansky, an analyst at Canaccord Genuity, in an email. "Cisco's recent challenges notwithstanding, it certainly remains squarely within that definition."

Other analysts agree.

"Anytime that a company struggles, people think that that's a long-term trend and they don't want to use it as a barometer for tech anymore," said Brian White, an analyst at Ticonderoga Securities. " But just because Cisco has had two bad quarters doesn't mean that they are not a big part of the tech puzzle -- they have been around for 20 years, they dominate their industry and they have around 70% market share."

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Despite concerns about market saturation and intensifying competition, the consensus is clearly in favor of Cisco's place in the tech pantheon. Of 832 readers that responded to a recent poll conducted by TheStreet, almost three quarters said that the company remains a tech bellwether.

"The networking market, with the shift to cloud computing and mobile Internet, is still a very exciting area," said Ticonderoga's White. "I don't think that there's a big secular trend that's going against Cisco that can't support that growth."

The analyst also likes Apple. "Apple has a long history," he said. "Look at the performance they have had, look at the trends they play into."

The Cupertino, Calif.-based firm, which has posted a succession of stellar quarterly results, has proved expert at riding -- if not creating some of -- the big trends in consumer technology. Launched last year, the iPad effectively confounded the critics who questioned the company's ability to breathe new life into the ailing tablet market.

Apple has sold more than 10 million iPads and is expected to receive another boost from its new iPad 2. And even though the launch of Apple's eagerly-anticipated iPhone 5 remains clouded in secrecy, all signs point to Apple continuing its upward trajectory.

The Consumer Electronics Association predicts that the global market for electronic gadgets will be $964 billion in 2011, a 10% increase on 2010.

"Cisco and Apple are both tech bellwethers, but Apple certainly has the wind at its back," said Jayson Noland, an analyst at Robert W. Baird.

--Written by James Rogers in New York.

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