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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: alex pierson who wrote (17912)	10/7/1998 1:18:00 PM
From: J Parmar	Read Replies (1) \| Respond to of 77399

Can Cisco Stay Bulletproof Amid Woes for Tech Shares? By LISA BRANSTEN THE WALL STREET JOURNAL INTERACTIVE EDITION SAN FRANCISCO -- "What's the matter with CSCO? Why down so much?" That was the plea bruce_lee66 posed on a Yahoo! Message board Friday in discussing the decline of data-networking giant Cisco Systems' shares. Within an hour NSthreads responded thus: "The entire market.... CSCO is not alone!" For most of the day that was certainly an acceptable explanation of the slump in Cisco's share price, but if one takes a longer view, more examination may be necessary. (Back to the short view: The Nasdaq Composite Index turned around to advance 7.94 to 1614.98 Friday, while Morgan Stanley's high-tech 35 index slid 3.57 to 540.62. On Friday, shares of Cisco fell 1 49/64 to 55 31/64 on Nasdaq.) Until recently, Cisco had managed to mostly avoid the declines that dealt body blows to much of the rest of the technology sector. As of Friday's close, the Nasdaq was 20% below the year high set July 20, yet Cisco managed to set a new high of 70 11/64 at the end of August, after which they have yo-yoed. Is Cisco bulletproof? Can shares of the San Jose, Calif., giant continue to rise while most of the rest of the technology sector crumbles around it, or is Cisco's recent weakness a sign that it and other untouchables are finally surrendering to the global economic turmoil that has wreaked havoc elsewhere in the market? Other companies that have managed to avoid some of the market's new bearishness are Dell Computer and Microsoft. Like Cisco, both of these companies are leaders in their sectors, with Microsoft the world's largest software company and Dell the largest direct seller of personal computers. Although none of the three have proven immune from the market bumpiness, all three were within 5% of their 52-week highs until the end of last week. (On Friday, Dell rose 1 1/8 to 62 11/16 and Microsoft inched up 1/16 to 104 1/8, both on Nasdaq.) John Rossi, an analyst at BancBoston Robertson Stephens, said none of the Super Three are likely to have serious business troubles related to the turmoil in Asia and Russia. But he is bearish even on these gold-star names for the moment, contending that they will be affected by the revaluation of the general market that is taking place as investors pull their money out of stocks and prove unwilling to tolerate the astronomical price-to-earnings ratios that have become the norm. "It's a lower tide that affects all stocks," he said. "At the margin we're going to see a slowing economy, and that's going to affect all stocks." But, he added, "I don't expect a time bomb" from any of those companies in the form of unexpectedly low earnings or revenue. For much of this year, the conventional wisdom has held that the surging growth of the Internet and increased demand for corporate networks are so strong that growth in the networking sector will continue even in the face of an economic slowdown -- an excellent position for Cisco to be in. "There are those who believed that Cisco was immune," said Paul Sagawa, who covers data-networking stocks for Sanford C. Bernstein, adding that the company is "being revalued with the rest of the market in that the same issues that have affected the rest of the economy are coming to roost at Cisco." Mr. Sagawa said he believes there could be rough times ahead for Cisco next year if firms that have been hit by global economic slowdown -- particularly large financial institutions -- pare back capital spending. "About 20% to 25% of all IT [information technology] spending is done by financial institutions," he said, adding that communications spending is a huge part of that. "If the business looks soft going into 1999, I've got to believe they're going to pull back," he said. If the existing macroeconomic troubles prove short-lived, he said, Cisco and the rest of the tech sector could rebound in the second half of next year -- but if the global economy stagnates or continues to worsen, it could be well into the year 2000 before there are signs of life in the sector. Mark Specker, who follows Microsoft and Dell for SoundView Financial Group Inc., said that fears of a slowdown based on problems at financial institutions may be overblown: The analysts making the projections, he said, work for the companies in question and therefore are all too aware of the problems they face. "In financial-service companies it's possible to delay purchasing [IT products and service], but it's one of the few lever points that these companies have to get more efficient," he said. While Dell and Microsoft may be revalued with the market, he said, the business fundamentals at both companies are strong and they should continue to outperform both other parts of the market and other technology companies.