Updated from 4:15 p.m. EST

After a promising start, the

Cisco

(CSCO) - Get Report

rally lost its voice Wednesday evening as the company guided investors toward soft second-quarter results.

The San Jose-based company got its standing-room-only quarterly earnings show off to a strong start Wednesday evening, reporting pro forma profits that beat Wall Street's targets. But Cisco's second-quarter revenue guidance was less impressive, calling for a flat performance at best amid continued weak technology spending at big companies. Cisco's shares, which had rallied earlier on the stronger-than-expected EPS figure, slid below their 4 p.m. closing price.

Though CEO John Chambers pledged that Cisco would benefit from a winnowing-out process in which the big telco spenders direct more of their purchasing dollars toward Cisco's already bulging wallet, investors appeared just slightly crestfallen that they didn't get a heads-up from the big networker to keep believing in the market's recent tech revival.

"I think we're seeing a bit of a glide path downwards from here to the very tight IT budgets we're going to see in 2003," says CIBC World Markets analyst Steve Kamman.

Numbers Game

For its fiscal first quarter ended Oct. 26, the San Jose-based maker of communications gear posted pro forma earnings of 14 cents a share, a penny ahead of Wall Street analysts' estimates and up from 4 cents a year earlier. Revenue was flat sequentially but rose 9% from a year ago, to $4.8 billion.

Cisco's bottom-line profit, going by generally accepted accounting principles, hit $618 million, or 8 cents a share, in the latest period, reversing a year-ago bottom-line loss of $268 million, or 4 cents a share.

If the first-quarter numbers were solid, though, investors found the outlook less galvanizing. CEO John Chambers said on a postclose conference call that second-quarter revenue would range from flat with to 4% below the first-quarter figure. The Thomson Financial/First Call analyst consensus estimate projected second-quarter revenue of $4.9 billion.

The weak outlook, while hardly shocking or deeply damaging to Cisco, could spell the end of the recent

tech and telecom rally that has left so many investors scratching their heads -- and buying stocks they'd long ignored.

Black Helicopters

Many observers had said coming into Wednesday that Cisco would need to offer at least mildly optimistic guidance to maintain the market momentum built up during the last month's sharp rally. Even though Chambers said repeatedly that Cisco is poised to gain from an upturn in corporate IT spending, it now appears unlikely that investors will put a positive spin on the report.

Perhaps worst of all for the recently revived communications equipment sector, Chambers all but ruled out the white-knight scenario that has gained such favor among desperate investors. Bulls have long hoped that cash-rich Cisco might sustain some members of a beaten-down group by buying floundering peers at the recent 90%-off prices. But Chambers, in the midst of a somber commentary that focused on Cisco winning share from its peers, all but said the company would never buy the

Lucents

or

Nortels

of the world.

Cisco shares, up 50% from their lows of last month, rose 26 cents to finish at $12.95 ahead of the postclose report. The stock rallied further after the release of the numbers, jumping to $13.50, before falling back to $12.84.

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