Not Quite Half Full...
Cisco Raises Fear of Recovery's StrengthWed Aug 11, 2004 09:14 AM ET
By Ben Klayman
CHICAGO (Reuters) - The resurgence in technology spending may be faltering, judging from cautious comments, rising inventories and a weaker-than-expected sales outlook at Cisco Systems Inc. (CSCO.O: Quote, Profile, Research) , as well as bad news from other technology companies.
Cisco, the world's largest maker of equipment that directs Internet traffic, late Tuesday posted a record quarterly profit on strong sales, but investors fretted about Chief Executive John Chambers' comments about customer caution. Shares of Cisco fell almost 9 percent in trading on INET before the market opened on Wednesday.
Also on Tuesday, National Semiconductor Corp. (NSM.N: Quote, Profile, Research) , a maker of analog semiconductors, reversed its previous outlook by forecasting that sales in its current quarter would fall on lower-than-expected demand.
Chip equipment maker Kulicke & Soffa Industries Inc. (KLIC.O: Quote, Profile, Research) warned that sales in its current quarter would fall short of its prior forecast by as much as 31 percent, citing growing customer caution.
"It was not just Cisco. National Semi preannounced weakness in handsets. We saw in the last month or two, software companies preannounced earnings shortfalls. Generally guidance from a lot of companies are more cautious into the third quarter," Bear Stearns analyst Wojtek Uzdelewicz said.
"There is a major deceleration in technology spending, although (the growth is) still healthy," he added.
Cisco on Tuesday said profits surged 41 percent and sales rose 26 percent. However, the San Jose, California-based company also said sales in the current quarter would be flat to up 2 percent from the prior quarter, below analysts' expectations.
Chambers also raised red flags for some investors with his cautious comments.
"Most of the CEOs that I talk with view the economy as growing at a modest level and are a little more cautious ... than they were a quarter ago," he said on a conference call with analysts.
Cisco also said its inventories rose 9 percent from the previous quarter, more than Wall Street had been expecting. Company officials said they were not concerned, but a rise in inventories was one of the first signs of trouble before the telecom bubble burst in 2001. Cisco took a $2.2 billion charge in 2001 to write off excess inventory.
Investors see Cisco as a benchmark for corporate and government spending because about 75 percent of its revenue comes from those customers. The rest comes from the telecom sector.
posted by Richard at
Wednesday, August 11, 2004
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