Ahead of the Bell: Cisco drops in premarket

Cisco Systems falls in premarket trading as revenue outlook worries investors

Associated Press

NEW YORK (AP) -- Shares of Cisco Systems Inc. slid in premarket trading on Thursday as the world's largest maker of computer-networking equipment raised the possibility of a big slowdown in technology spending.

The company, which reported its third-quarter financial results late Wednesday, alarmed investors with its sobering fourth-quarter forecast. Cisco CEO John Chambers said that customers are waiting longer to close deals and spending less money because of growing concerns about the economy, particularly in Europe and India.

The company said it anticipates quarterly revenue will rise 2 percent to 5 percent from a year ago, but analysts polled by FactSet expected a 7 percent increase.

George Notter of Jefferies & Co. said that he was surprised by the magnitude of Cisco's soft fourth-quarter outlook.

"It reminds us that, while Cisco is executing rather well, the business remains highly correlated with the ebbs and flows of the global macro-economy. Europe is clearly deteriorating," the analyst wrote in a client note.

Notter reiterated a "Hold" rating and $18 price target.

Citi Investment Research's Jim Suva said that Cisco's guidance was not exactly what investors were looking for, as revenue "is the most critical metric from Cisco to watch for the technology supply chain."

The analyst suggested investors buy shares of companies that make connecting equipment such as TE Connectivity Ltd. instead.

"We favor the connector industry, which has a much more diversified customer base, stronger cash flow, margins, dividends, stock buybacks, and accretive merger and acquisition opportunities," Suva said.

Cisco's stock slid $1.49, or 7.9 percent, to $17.29 in premarket trading.

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