Tech investors like the sound of
revived growth story.
The gloom that has hung over the Nasdaq lifted slightly Wednesday after Cisco offered a rare sunny forecast. Prior to Cisco's Tuesday-afternoon earnings release, the Nasdaq had dropped 13% since April. But the tech-heavy index gained 2% Wednesday after Cisco's bullish comments.
After posting estimate-beating fiscal fourth-quarter earnings Tuesday, the San Jose, Calif., Internet gearmaker raised its fiscal 2007 sales growth target to a range of 15% to 20%, from the 15.5% Wall Street was looking for.
Encouraged by a strong order backlog, thriving cable-gear sales through its Scientific-Atlanta unit and a solid core network infrastructure business, CEO John Chambers' takeaway from the most recent quarter was that "momentum remained strong."
The optimism took investors by surprise. Cisco shares surged 15% at midday Wednesday. Meanwhile, gear peers like
saw gains of 6%, 4% and 6%, respectively.
The mirth even spilled over into some of the out-of-favor segments of tech like communications chips and components. For example,
rose 8% and
was up 7%.
Analysts provided some glowing reviews of Cisco's performance, helping to keep investors jazzed.
"We believe SFA opens up new product cycles and re-invigorates top-line growth while resulting in cost synergies," JP Morgan analyst Ehud Gelblum wrote in a research note Wednesday. "As Cisco begins to play offense again, we expect multiples to expand," added Gelblum, who has a buy rating on the stock.
Others also saw upside potential for Cisco's stock.
Given the strength of the fiscal fourth quarter and the "opportunities" in Internet protocol TV, "we believe Cisco's shares may trend back towards its yearly high levels," RBC Capital Markets analyst Mark Sue wrote in a report Wednesday.
But industy observers still have concerns that Cisco's progress could be impeded by larger forces.
Cisco's guidance "shifts revenue growth to later quarters in the year, increasing the risk profile if the macroeconomic slowdown were to accelerate," JP Morgan's Gelblum writes.
There seems to be a limit to how fast a company can grow when the economy is tapping the brakes.
"Organic revenue growth will be 12% year-over-year in fiscal 2007 vs. 11% in 2006. We don't see the macro environment supporting a much higher organic growth in 2007 over 2006," UBS analyst Nikos Theodosopoulos wrote in a note Wednesday.