A Cisco Anomaly, Time to Buy?
At approximately 4:20pm EST, time stopped on Wall Street, and for
good reason. Networking giant Cisco Systems (NASDAQ:CSCO +1.19)
was about to report its second quarter earnings. The 64,000
Question: Would they meet analysts' estimates? Given the rash of
announcements pertaining to the economic slowdown, the fall off
in telecom spending and the trickle down effect via order
cancellations, the odds weren't looking too good. When all was
said and done, CSCO's earnings fell short by a penny. It was the
company's first shortfall in 12 quarters. Earnings came in at 18
cents, 66 percent higher than year ago levels. Second quarter
sales jumped 55 percent to $6.75 billion compared to $4.36
billion a year ago. Gross margins fell 1.7 percent from 63.5
percent to 61.8 percent. Not bad for any other multi-billion
dollar tech company, but not for CSCO investors. After the
announcement, the company said it, "remains cautious about the
implications of a brief pause in the current 10-year expansion of
the U.S. economy," but added that it, "has never been better
positioned" to help its customers. Shares, after gaining $1.19
during the regular trading, were lower by roughly $1.50 in the
aftermarket. Given that the fact that CSCO did not plunge after
the report, however, does bode well for tech going forward,
according to several analyst interviews.
Layoffs are starting to reach some noteworthy highs. U.S.
companies announced 142,208 job cuts in January, the highest
number in almost in eight years. According to outplacement firm
Challenger, Gray & Christmas, it's the first time since the
company started tracking layoffs (1993) that the survey has
recorded back-to-back months exceeding 100K. Telecom, e-commerce
and computer companies made up the largest percentage, with
44,851, or 32 percent of the total. The auto sector was a close
second with 34,959.
Among today's casualties included infrastructure player Infospace
Inc. (NASDAQ:INSP -0.59), which announced it will rid itself of
250 workers, or 20 percent, of its workforce. Infospace has come
a long way...down that is. Remember, this is the same company
whose CEO, Naveen Jain, said when shares were at a pre-split high
near $275 in early 2000, that INSP would become the first
trillion-dollar market-cap company. Well, with shares now
trading for $3.50, rendering a market cap of just $1.52 billion,
you are only $998.5 billion away, Mr. Jain.
Toy huckster Etoys (NASDAQ:ETYS -0.09) said late Monday that it
would let go of its remaining 293 employees, but said it still
had enough cash to run the business through March 31. Enough
cash to get through 1Q...wow, there's a ringing endorsement for
investors to jump on board. NOT!
If that wasn't enough evidence that the economy needs a boost,
one of the world's largest mobile phone makers, Vodafone
(NYSE:VOD -0.88), announced for the second time in four months
the delay of it Verizon Wireless IPO, a joint venture with U.S.-
based Verizon Communications (NYSE:VZ +1.90). Needless to say,
poor market conditions were cited as the reason for the delays.
It's rumored that VOD, which already owns 45 percent of VZ, may
simply buy the business outright.
The Dow finished higher on Tuesday, buoyed mainly by gains in
technology and an upbeat earnings report from media giant Disney.
When the dust settled, the DJIA closed up 8 points to 10,957.42.
Disney (NYSE:DIS +1.18) shares added 3.9 percent after beating
estimates by a penny. The numbers, of course, excluded a $127
million charge for the burial of its entertainment portal Go.com.
However, upbeat news regarding its theme park revenues along with
unwavering ad revenues from its "Who Wants To Be A Millionaire"
show offset any worries of a weak advertising environment. Also
helping to Dow to crack the 11,000-barrier were gains in tech
bellwethers HWP (+4.25%), IBM (+1.76%), UTX (+0.22%) MSFT
(+1.01%) and INTC (+2.16%).
Breadth for the Dow, however, was a bit deceiving, as decliners
beat advancers 18-12. On the broader NYSE, however, winners did
manage to sneak by losers 16-14, on volume of 1.04 billion
shares. New highs trounced new lows 181-6.
Over at the NASDAQ, investors feasted on a high-fiber diet. The
COMPX finished up 21 points to 2664, keeping above key support at
2,650. Today, optical stalwart JDS Uniphase (NASDAQ:JDSU +11.81)
announced that it has received U.S. approval for its $17.7
billion acquisition of pump laser purveyor SDL, Inc. (NASDAQ:SDLI
+11.13). JDSU has gobbled up some 10 companies in the last year
and a half, with SDL ranking as the company's largest. However,
SDLI was not the only deal for JDSU on Tuesday. Nortel Networks
(NYSE:NT -0.25) agreed to pay JDSU upwards of $3 billion for its
Zurich-based pump-laser chip plant.
But it wasn't all pump lasers and roses today. Amazon.com
(NASDAQ:AMZN +1.38) was the recipient of a glaring report
questioning the company's financial position. Analyst Ravi Suria
said AMZN would likely experience a "credit squeeze" in the
second half of 2001, running out of cash by year's end. Amazon
fired back, however, saying that it had sufficient funds to get
through the end of the year. Investors spurned the report, as
shares finished up $1.38 to $15.81.
Breadth on the NASDAQ ended in favor of the gainers by a narrow
margin of 20-18. Volume was somewhat weaker than normal, as 1.78
billion shares exchanged hands. Then again, everybody and his
brother was waiting for Cisco's numbers.
Checking out the market's broadest measures, the S&P 500 Index
(SPX) ended lower by 2.18 points at 1352.13. In the small-cap
arena, the Russell 2000 (RUT) closed at 505.76, up 5.02 points,
or 1 percent. The all-encompassing Wilshire 5000 Total Market
Index (TMW) finished the day up 0.06 percent at 12,479.86.
Sectors trading to the up side included Biotech (BTK:+3.98%),
Semiconductors (SOX:+0.61%), Internet (DOT:+1.37%), High Tech
(TXX:+0.45%) and Airlines (XAL:+0.09%). Areas taking it on the
chin included Gold (XAU:-2.51%), Insurance (IUX:-2.10%), Banking
(BKX:-2.30%), and Chemicals (CEX:-0.74%). Also worthy of note
were homebuilding stocks, which advanced given the favorable
interest rate environment.
The price of 30-year bonds fell Tuesday after dealers expressed
opposition to the possible elimination of the bellwether issue.
Their argument revolved mainly around the higher costs associated
with buying back older issues. The $32 billion in government
paper, along with a slew of new debt being issued by corporations
and other federal agencies, is also applying pressure to prices.
Looking Forward
I'll start off by saying that the failed quadruple-top for the
Dow doesn't make me feel too good. I'm not saying that the old-
school index is headed back to 9,000 or anything, but with the
end of first quarter earnings just about over, what's going to
move this market higher in the short-term? We need a catalyst.
Hopes of Cisco being that driver all but failed. Sure, the Fed
seems committed to lowering rates, hoping to spur more spending
by consumers and more borrowing by the private sector, but what
the Fed needed to do was lower rates by 75 basis points, not 50.
Looking at the NASDAQ, it's a crapshoot. On one hand, you could
say that Monday's close just under support at 2650 was
comforting. Then again, CSCO's earnings shortfall today makes
holding support that much more difficult. Add to that a VIX at
an undecided reading of 23.82 and you're looking at more
rangebound trading for both the Dow and the NAZ. On the economic
front for tomorrow, we have productivity numbers, consumer
credit, oil and gas inventories, and semiconductor billings.
Scouring the earnings calendar for tomorrow, there was nothing I
saw that would have any dramatic impact, especially in comparison
to what we had today. |
