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No downgrades
Determining the difference between pessimism-to-make-the-lawyers-happy and a true change in the guidance that a CEO gives to the market is a difficult art. But don't forget that for the analysts who follow Cisco, their living depends on correctly determining that difference. And not a single analyst downgraded the stock after the conference call. Three of them even upgraded it. So it's surprising that the stock went down anyway.
Most analysts who cover Cisco still expect it to make $0.14 in earnings per share next quarter. Chances are that the company will reach that mark. Chambers would have been more specific in his negative comments if he was worried, which would have led analysts to lower their estimates for the next quarter.
Besides, Cisco -- unlike competitors such as Lucent Technologies (LU) and 3Com (COMS) -- isn't a manufacturer. Although it makes a very small amount of its products, the vast majority are made by contract manufacturers. Chambers clearly said his company was confronting supply shortages, not the contractors that make most of its products. One component that he mentioned, memory chips, is in the midst of a well-publicized scarcity, so that can't be described as news. "This company is so strong in supply-chain management, if anyone knows how to deal with a shortage, it's Cisco," says First Union Securities Inc. analyst Steve Koffler, who rates Cisco a strong buy.
So what's going on? Step back and look at the big picture. The stock's 13% slide makes sense when you consider the revaluation of technology stocks overall. Cisco isn't changing, and its growth story isn't changing. Investors' views of how much a tech stock is worth are changing. If some important news signified a negative change in Cisco's story -- and the Barron's article doesn't contain any -- it could truly hurt the stock. But if what we're witnessing is just an alteration in investors' perceptions of the tech sector, then Cisco's drop is just a slight wobble in the orbit of what remains one of Silicon Valley's brightest stars.
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