Slower Growth At Cisco Pressures Technology Stocks
By DANIELLE SESSA
WSJ.COM
NEW YORK -- Cisco Systems dragged down technology stocks Wednesday after the market bellwether missed analysts' expectations for its fiscal second quarter and warned that revenue is unlikely to grow for the next six months.
In afternoon trading, the Nasdaq Composite Index was down 108.70 to 2555.80 and Morgan Stanley's high-tech 35 index lost 39.40 to 717.40, while the Dow Jones Internet Index fell 10.70 to 130.60.
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The market had been essentially treading water this week leading up to Cisco's report. A steady flow of companies have either missed earnings expectations or lowered their growth outlooks in the face of a declining economic environment, and investors were holding their breath to see if Cisco would join the group or break from the pack.
After the market close Tuesday, investors got the answer they didn't want to hear. The tech stalwart fell short of Wall Street expectations for the first time in nearly seven years and effectively ended its three-year run of hyper growth with a modest 3.5% sequential increase in revenue and an outlook for no growth over its next two quarters. The networking giant said weak orders from telecommunications carriers and dot-coms contributed to the shortfall and forecast of flat growth (see article).
Excluding charges, Cisco said it earned 18 cents a share, or $897 million, missing analyst estimates by one penny, according to First Call/Thomson Financial. Revenue also fell short of expectations. Cisco reported sales of $6.75 billion, about 5% below the $7.1 billion analysts estimated, according to First Call.
Many analysts reduced their targets for the year in light of Cisco's revised guidance and some also lowered their recommendations on the stock.
Credit Suisse First Boston analyst Lissa Bogaty predicted Cisco's earnings-per-share growth will be flat for the next four quarters compared with year-earlier levels. She downgraded the stock to "buy" from "strong buy" and cut her price target to $45 from $65. SG Cowen and Morgan Stanley also lowered their recommendations on the stock.
Cisco slumped $5.69, or 16%, to $30.06 on the Nasdaq Stock Market, setting a new 52-week-low.
Cisco was the poster child of the rapid growth that fueled the fast ascension of Nasdaq stocks. The tech leaders that pushed the index to its heights are now being taken down along with the second- and third-tier players.
JDS Uniphase slipped $5.44 to $46.38, Yahoo! retreated $3 to $33.13 and Sun Microsystems dropped $1.94 to $25.88 on Nasdaq.
The situation at Cisco caused a ripple effect in tech stocks, not only because of negative sentiment surrounding the fallen tech giant, but because of its ballooning inventory levels. Cisco's inventory grew by $600 million and is now double the level from six months ago. The inflated component stockpiles also pressured semiconductor stocks most exposed to Cisco.
Communication-chip makers Applied Micro Circuits and PMC-Sierra tumbled while GlobeSpan and Broadcom also felt the effects of Cisco's high inventory. Applied Micro lost $7 to $48.06, PMC-Sierra slid $10.56 to $56, GlobeSpan fell $5.88 to $28.88 and Broadcom eased $12 to $80.50 on Nasdaq.
Elsewhere, EarthWeb added 69 cents to $6.31 on the Nasdaq Stock Market. The job-search site posted a fourth-quarter loss that was narrower than expected but said that the slowing economy will hurt first-quarter results (see article).
Viant fell 25 cents to $3.88 on Nasdaq. Viant reported a net loss amid a slowdown in the once fast-growing Web consulting business and charges related to recent staff cutbacks (see article).
Cnet Networks dropped 88 cents to $15 on Nasdaq. The Internet media concern said its profit excluding charges was in line with analysts' forecasts, but warned that slowing market conditions would crimp earnings this year and cause it to cut 10% of its staff (see article).
MP3 eased 34 cents to $3.94 on Nasdaq. The online music company will work with Qualcomm to develop a system to deliver digital music to wireless devices. Qualcomm shed 69 cents to $82.25 on Nasdaq.
MicroStrategy plummeted $3.56, or 21%, to $13.38 on Nasdaq after the software developer missed sales targets for the fourth quarter and lowered its revenue outlook for the year. The company reported $58.1 million in sales for the quarter, down from $64.9 million in the third quarter and below analyst estimates of $60 million. The company also trimmed its growth projection for 2001, expecting sales to increase 30% from $224 million last year, below the 40% to 50% jump management predicted in October.
Boston Communications Group sank $6.25, or 42%, to $8.63 on Nasdaq. The pre-paid wireless systems provider sliced its earnings targets for 2001 because it probably will lose a major customer. Boston Communications said it would lose 28% of its subscribers, or 800,000 customers, because a unit of Rogers Wireless Communications opted to bring its pre-paid operations in-house. As a result, Boston Communications sliced its earnings per share estimates to between 50 cents to 52 cents, down from its previous forecast of 62 cents a share.
InfoSpace advanced 81 cents, or 22%, to $4.47 on Nasdaq. Investors piled back into the stock after the company issued a press release early Wednesday that scheduled a conference call to improve its financial guidance. The Internet infrastructure company will outline its plan to return to pro forma profitability by year end during a Feb. 12 conference call. The stock has tumbled in recent weeks because of lowered guidance for 2001 and several top-level executive departures.
Write to Danielle Sessa at danielle.sessa@wsj.com |
