Cisco's high-growth days may be over
By Ben Klayman
CHICAGO, May 9 (Reuters) - Investors disappointed with
Cisco System Inc.'s lack of guidance for the high-tech
economy in the coming months will just have to accept that the
networking giant's days of heady growth may be over, analysts
said on Wednesday.
Shares of the bellwether technology company fell as much as
8 percent Wednesday as the Nasdaq's most active stock, and were
still off $1.16, or 5.69 percent, at $19.22 in afternoon
trading. The drop came a day after the San Jose,
California-based company posted a third-quarter net loss after
charges of $2.69 billion.
While Cisco Chief Executive John Chambers said the company
still believes the industry will eventually return to growth
rates of 30 percent to 50 percent, he and other executives were
unable to provide much short-term guidance. Cisco reiterated
that its fourth-quarter revenues will be flat to down 10
percent from $4.73 billion in the third quarter.
"Everyone has to get used to the fact that this is a
lower-growth industry in general," said Robert Gensler,
portfolio manager of T. Rowe Price's Media & Telecommunications
Fund. "This isn't like tech where they go straight up and to
the right or straight down," he added. "It's now like a real
company and that's what people have to get used to."
That change has been reflected in Cisco's stock
performance. Over the past year, it has underperformed the
Standard & Poor's 500 index by about 65 percent.
MORE POSITIVE OUTLOOK DESIRED
Investors had looked for a more positive outlook from the
company that makes gear that helps power the Internet.
"People were hoping for a more optimistic conference call,"
said Tim Ghriskey, senior portfolio manager with mutual fund
company Dreyfus Corp. "There was the hope, even the belief,
that Cisco would be able to say something positive."
Analysts said investors had hoped for more concrete
information on a possible turnaround.
Chambers said on Tuesday there were signs the networking
and communications sectors could hit bottom in the next one to
two quarters. Even so, the company said the outlook for future
demand remains murky, particularly in the service provider
market which includes cable and telephone companies.
The net loss for the fiscal third quarter came after a $2.2
billion excess-inventory write-off and a $1.17 billion charge
for a restructuring that includes cutting 8,500 jobs, or 17
percent of its work force.
Cisco cited the slowing global economy and a slump in
spending on telecommunications equipment. The company said
European sales have dropped sharply and business has slowed in
much of Asia. North American sales were no better off.
Chambers also said rival Juniper Networks Inc. had
gained market share.
Cisco's earnings before one-time items were in line with
forecasts that it had guided lower in April.
Profits before one-time items dropped 77 percent to $230
million, or 3 cents a share, for the quarter ended April 28,
compared with pro forma net income of $1 billion, or 13 cents a
share, in the year-ago period. Revenues fell 4 percent.
ANALYSTS RAISE ESTIMATES, BUT ARE WARY
Several analysts raised their earnings estimates, citing
lower spending levels, but were cautious about Cisco's
prospects amid expected weaker customer demand going forward.
"While there are signs of improvement in some segments
(alternative carriers, cable operators), the business outlook
in the majority of Cisco's markets remains challenging in the
near-term," Merrill Lynch analyst Michael Ching wrote in a
report.
Merrill reiterated its neutral recommendation on
communications chip makers that sell to Cisco, including
Applied Micro Circuits Corp. , Broadcom Corp. ,
Conexant Systems Inc. , PMC-Sierra Inc. and
Vitesse Semiconductor Inc.
In the absence of forward-looking guidance, many investors
retreatedfrom the bullish stance that sent shares nearly 6
percent higher on Tuesday before the results were released.
"We believe the conference call may leave a somewhat mixed
near-term impression with investors," said Lehman Brothers
analyst Tim Luke, citing a still unclear picture of when demand
will improve.
(Additional reporting by Timna Tanners in Los Angeles)
REUTERS
Rtr 16:46 05-09-01 |
