Cisco shares drop 13 percent after revenue warning

Thu Nov 14, 2013 11:49am EST

1 of 3. A Cisco logo is seen at its customer briefing centre in Beijing, November 14, 2013.

Credit: Reuters/Kim Kyung-Hoon

(Reuters) - Cisco Systems Inc's shares fell as much as 13 percent on Thursday after the network equipment maker forecast a steep drop in revenue for the current quarter, prompting at least 17 brokerages to cut price targets on its stock and two to downgrade their ratings.

Cisco said on Wednesday it expected an 8-10 percent drop in revenue in the current quarter after lower sales to telecom and cable service providers and in emerging markets hurt its results in the quarter ended October 26.

Analysts cut their price targets on Cisco's stock by as much as $6 to a low of $20.

Cisco shares were trading at $21.00 in late morning trading on the Nasdaq. About 140 million shares had traded by 11:13 a.m. ET.

Goldman Sachs was among the brokerages that cut its target price, to $25 from $30.

Goldman also removed the stock from its Conviction List of top picks, citing "reduced confidence in the near-term trajectory", but Goldman analysts maintained their "buy" rating.

Cisco's revenue warning comes after former U.S. spy agency contractor Edward Snowden exposed widespread surveillance by the National Security Agency through internet data, much of which is transmitted via Cisco's equipment.

Cisco's chief financial officer, Frank Calderoni, told analysts the company had been affected by a political backlash in China, but said it was difficult to quantify how much of its revenue shortfall was a result of this.

In a note titled "An outlook to make even mom look twice", RBC Capital Markets analyst Mark Sue said the China issue might linger for a while. Sue cut his price target on the stock to $22 from $24, maintaining a rating of "outperform".

"While our checks noted emerging markets weakness, we were clearly wrong on magnitude of the order weakness," Deutsche Bank analyst Brian Modoff said in a note.

Modoff downgraded Cisco's stock to "hold" from "buy", and cut his price target to $25 from $28.

Analysts said Cisco faced stiff competition from companies such as Aruba Networks Inc, Alcatel-Lucent SA, Brocade Communications Systems Inc, Ciena Corp, F5 Networks Inc, Riverbed Technology Inc and Juniper Networks Inc.

However, shares of these companies also fell on Thursday, along with those of optical component makers JDS Uniphase Corp and Finisar Corp, which supply Cisco.

Credit Suisse analyst Kulbinder Garcha said Cisco looked increasingly vulnerable to technological innovations and competitive pressures. Garcha cut his price target to $20.

(Reporting by Neha Alawadhi in Bangalore; Editing by Kirti Pandey and Ted Kerr)

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Comments (2)
Verpoly wrote:
Cisco has been specifically named by Snowden to have spied for US albeit involuntarily via its tech instruments sold to China. This yields a pretext for their domestic suppliers to expand their market share.

While I don’t buy the notion someone may be able to spy by simply selling hardware, Cisco may continue its prosperity there by seeking possibly a joint venture to lower its pro-American image.

Nov 14, 2013 7:43am EST  --  Report as abuse
Corpgov.net wrote:
Cisco Systems ($CSCO) faces challenges as never before. For example, Cisco recently lost a $1B deal with Amazon.

Meeting those challenges will take a concerted effort by management and the board of directors. Shareowners, who elect the board and vote on major proxy issues facing our company, also play an important role in Cisco staying competitive and profitable. Yet, most shareowners are passive.

Most of us don’t even bother to vote our proxies and who can blame us? This year’s Proxy materials are over 80 pages long. Who has time to read, digest and make decisions on all that information?

Finally, we could have the help we need with a proxy advisor contest paid by all shareowners (through Cisco) and chosen by a vote of shareowners. My proposal is in the proxy. Please read it and vote for it. More information at http://corpgov.net/2013/11/cisco-systems-proxy-proposal-5-11-qa

Nov 14, 2013 1:07pm EST  --  Report as abuse
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