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Tech Rumor of the Day: Cisco

As Cisco's earnings report approaches, the short interest in the stock has increased 35% in the past month.

Not to pick on



this week

, but a lot of investors are betting that bad news will knock the stock down a bit.

As the networking gearmaker's earnings approach, the short interest in the stock has increased 35% in the past month. There are currently 76.6 million shares shorted, the highest level of short interest in Cisco over the past year.

By shorting, it means people borrowed 76 million Cisco shares on the hope that the value will fall and they can replace the stock at a lower price and pocket the difference.

So what's looming on Cisco's horizon that could hurt the stock: For one, fiscal third-quarter earnings next month. The bears suspect that the company will disappoint on earnings, or more likely slash guidance as tight-fisted IT buyers and phone companies conserve cash amid a global recession.

Why the gloom?

There's been no shortage of new forecasts showing that demand for tech gear is still falling.

Earlier this week, Morgan Stanley released the results of its survey of 150 IT chiefs. Despite the recent stock market rally, these spending decision makers sounded even more cautious about their budget plans. CIO's are 5.8% less likely to increase spending this year, and Morgan Stanley says that puts total 2009 IT spending 3.5% below year-ago levels.

Even more alarming, about 40% of CIOs now expect to cut their spending plans and a mere 4% thought they might increase their budgets this year.

An even more recent sign of weakness came from



Thursday. The network equipment joint venture between Nokia and



slashed its forecast, now calling for a 10% decline in sales this year. Nokia blamed belt-tightening by telcos, the increase in willingness of rivals to finance the sales of gear and tougher competition from Chinese manufacturers.

As analysts would say, Cisco is exposed to these market pressures.

Cisco bulls have always taken some measure of comfort in the sheer scale and depth of the company's reach. If banks in New York aren't buying new computer networks, IT shops in Bangalore may have picked up the slack. And as



slashes $3 billion

from its 2009 spending plan, telcos in China are shopping for new gear.

But as rival



showed last week

, there are few places to hide during a global recession.

Cisco has been feeling the pain. The company froze hiring, reduced travel and eliminated about 1,500 jobs already to get costs down by $1 billion. But the pressure continues, and some analysts predict Cisco will revise its sales guidance down to the lower end of expectations.

If true, it will mean a revenue slide of more than 20% from a year ago, not a scenario Cisco has adjusted for. Cisco may have to revise its intention to avoid an unpleasant and deep staff cut.

Cisco shares have enjoyed a 31% increase in the past five weeks riding the recent market-wide rally. Some investors are betting that optimism may be wrongly placed.