Cisco shares plummet, sink broader market

BANGALORE Thu Nov 11, 2010 1:34pm EST

A pedestrian walks past the Cisco logo at the technology company's campus in San Jose, California in this February 3, 2010 file photo. REUTERS/Robert Galbraith

A pedestrian walks past the Cisco logo at the technology company's campus in San Jose, California in this February 3, 2010 file photo.

Credit: Reuters/Robert Galbraith

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BANGALORE (Reuters) - Tech bellwether Cisco Systems (CSCO.O) lost 17.3 percent of its market value in frenzied trading on Thursday, a day after a gloomy revenue outlook left investors jittery, and some brokerages downgraded the stock.

More than $23.5 billion eroded from the company's market cap with about 370 million shares changing hands by 1240 ET -- more than 7 times their 50-day moving average volume.

About 200 million shares were traded in the first half hour after opening.

If the Dow component closes with this percentage loss, it would be the worst one-day percentage fall for the shares since July 1994, when they fell 17.71 percent on a profit warning, according to Thomson Reuters Datastream.

Cisco dragged down the broader market, sparking a selloff in technology stocks, including rivals Juniper Networks (JNPR.N), F5 Networks (FFIV.O), Riverbed Technology (RVBD.O) and Jabil Circuit (JBL.N).

At least three brokerages lowered their ratings and eight others cut their price targets on the shares of the company, which said weak spending by its public sector customers and soft orders from its cable segment hurt its results.

The disappointing forecast comes a quarter after Cisco warned of an uncertain economy, but led industry watchers to speculate if the weakness was in Cisco's business alone, given its high exposure to the public sector, which has been hemmed in by debt.

In an interview with CNBC on Thursday morning, Cisco Chief Executive John Chambers said the shortfall is not a "call on the economy in any way," adding that the world's top manufacturer of routers and switches did not see any unusual price competition.

Brokerage Stifel Nicolaus said in a note to clients: "While we believe that the public sector issue is likely to impact Cisco's peers too, Cisco probably has bigger exposure to that market than some competitors."

Juniper, F5 Networks and Riverbed had forecast upbeat growth prospects while reporting quarterly results recently.

"We consider the weakness at least in part a function of (market) share loss rather than a soft macro," said Barclays Capital.

On Wednesday, Chambers warned that Europe would be soft in the near term, but said Cisco would eventually get back on track to achieve its long-term target of 12-17 percent annual revenue growth.

"We believe that the stock will trade down in the near term and sideways over the next few months with no immediate catalysts," Bernstein Research said.

William Blair and Co said Cisco's size and market-share saturation in the core business of switching and routing, combined with competitive pressures were adding to the stew.

The stock has risen 3 percent since Cisco reported fourth-quarter results on August 11.

(Reporting by Sayantani Ghosh; Editing by Unnikrishnan Nair and Gopakumar Warrier)

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Comments (6)
ulludapattha wrote:
Of course Wall Street is stunned. The Street does not like bad news. But, that is a fact of life.
Austerity measures in many major economies are a fact that the Street cannot assimilate.

Money talks and money walks on Wall Street. Sometimes money walks away from Wall Street to buy gold instead of equities in uncertain times.

Economic history repeats itself at regular intervals: a fact of life that Wall Street does not seem to understand.

Nov 11, 2010 3:44am EST  --  Report as abuse
bkhjon wrote:
CSCO’s CEO spoke of Unusual Uncertainty in prior quarter and guided lower. Ditto this quarter. Extending the micro to macro, it tells worldwide recovery is not as rosy as media and some financial pundits have been reporting.

Nov 11, 2010 6:07am EST  --  Report as abuse
Eideard wrote:
I rarely comment on market silliness. Response to Cisco’s latest report is such a dungheap or foolishness and ignorance I must at least proffer my contempt.

If I was of a mind to purchase more Cisco shares – although they don’t fit my longrange plans – I would offer my thanks to so many “analysts who don’t know diddly-squat about the world of high tech.

Nov 11, 2010 9:56am EST  --  Report as abuse
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