UPDATE 2-Cisco down in massive trading after warning
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UPDATE 2-Cisco down in massive trading after warning
(Updates stock price, volume)
By Ben Klayman
CHICAGO, April 17 (Reuters) - Shares of Cisco Systems Inc.
, the maker of gear that helps to power the Internet,
fell in massive trading on Tuesday as analysts and portfolio
managers said the technology bellwether's earnings warning
could mean more bad news for the sector.
The stock fell 54 cents, or about 3 percent, to $16.66 on
Nasdaq after earlier dropping as low as $15.80. More than 175
million shares were traded, including more than 34 million in
the first 15 minutes of trading.
The heaviest one-day trading volume for a Nasdaq stock is
Intel, with 308.73 million shares traded on Sept. 22. No. 2 is
Cisco, with 281.62 million shares changing hands on Feb. 7, the
day after the company reported fiscal second-quarter results
that missed expectations.
Over the past year, Cisco stock has underperformed the
Nasdaq 100 index by about 48 percent.
Cisco said on Monday it plans to cut 8,500 jobs, or 17
percent of its work force; take charges of as much as $3.7
billion; and report third-quarter results far below forecasts
as the economy and customer spending continue to slow.
The San Jose, Calif., computer networking giant's warning
sent a shiver through the technology sector. Shares of
competitors and suppliers alike declined in after-hours trading
on Monday as investors worried that the technology sector had
yet to hit bottom.
"The bad news stretches as far as the eye can see, with no
light at the end of this particular tunnel," Sanford Bernstein
analyst Paul Sagawa said.
QUARTERLY REVENUE DECLINES SEEN
Cisco Chief Executive John Chambers said on Monday that
revenues would fall 30 percent to about $4.72 billion in the
third quarter ended April 28 from the previous three months and
projected a sequential decline of as much as 10 percent in the
fourth quarter. He added that third-quarter per-share earnings
will be in the very low single-digit range, and likened the
dramatic slump to a 100-year flood that rarely occurs.
The company plans to report third-quarter results May 8.
Lucent Technologies Inc. , Nortel Networks Corp.
and Cisco's other rivals have all either
announced large job cuts or issued profit and sales warnings.
ING Barings analyst Tom Lauria said he expects Nortel and
Lucent to further reduce their earnings outlooks.
"You still have a black hole ahead of you in terms of when
demand is going to at least stabilize and possibly turn up,"
said Jaye Morency, portfolio manager with Boston-area
investment firm David L. Babson & Co.
Even some of Cisco's smaller, more nimble competitors, such
as Juniper Networks , have seen business slow, and
networking start-ups are finding it far more difficult to tap
venture capital to build out their businesses.
Analysts said struggles by Cisco and its competitors will
also affect their suppliers, including communications chip
maker PMC-Sierra Inc. and such contract manufacturers
as Jabil Circuit Inc. , Solectron Corp. ,
Flextronics International Ltd. and Sanmina Corp.
.
SPENDING HALT
"Spending ground to a halt in December and hasn't really
picked up," said Larry Seibert, portfolio manager with New York
money manager Barrett Associates. "Companies are really just
holding off. At some point, the dam will break a little bit and
there will be a little bit of spending, but right now everyone
is seeing who will blink first."
Dresdner Kleinwort Wasserstein analyst Ariane Mahler said
Cisco's $2.5 billion inventory write-off raised concerns demand
is not improving any time soon. "I'm trying not to be in denial
of what's going on," she said. "Realistically, we may be into a
one-and-a-half to two-year down cycle."
Chambers has been sounding increasingly grim notes of
caution for months. In January, he said the then-current second
quarterwas a "little bit more challenging" than anticipated.
Later that month, at an economic conference in Switzerland,
his statement worsened to "more challenging than we
anticipated." And when Cisco reported second-quarter results,
he said, "The next several quarters will be challenging."
Sanford Bernstein's Sagawa doesn't see spending with
telecommunications carriers bouncing back until 2003, and
corporate customers aren't likely to boost their spending until
next year. "While I agree that it doesn't get worse, I also
don't see any reason it gets any better for a while," he said.
While some analysts think the bad news offers a buying
opportunity on Cisco stock, others believe it will continue to
fall. Sagawa still rates Cisco a good long-term buy, but called
investments in the company "at best dead money" for the next
six to 12 months.
REUTERS
Rtr 19:14 04-17-01 |
