Cisco's turbocharged days may be over, but it's still a key tech barometer because its growth is increasingly correlated to global economic trends.
The networking giant's stock shot up 10% to a three-month high Thursday, a day after beating cautious fiscal Q4 estimates. Revenue rose 4% and earnings per share 18%. Cisco also lifted its dividend 75% to 14 cents a share.
On the conference call, Cisco signaled to analysts that business spending on technology is stalling, but not falling apart.
"Its outlook for the U.S. was encouraging, but Europe is still deteriorating and spending in the public sector remains soft," said Brian White, research analyst at Topeka Capital. "I would say the tone of the call was muted.
From 'Hesitant' To Stable At least Cisco was more optimistic than it was in the prior quarter when CEO John Chambers said tech spending was "hesitant." This time he referred to "stabilization in our business" and "confidence going forward.
"Cisco expressed renewed momentum but held to a conservative stance due to macroeconomic uncertainty," wrote Brent Bracelin, equity analyst at Pacific Crest Securities, in a research note. "Though management hinted at emerging positive order trends, an uncertain macro environment suggests hesitancy is likely to persist.
Encouraging signs also came from NetApp, which largely met estimates late Wednesday. The storage systems giant's outlook suggested demand is improving.
"The outlook was good considering management is not betting on a macroeconomic turnaround," wrote Jayson Noland, an analyst with Baird Equity Research, in a report.
Chambers, in the conference call, explained the challenges Cisco has faced.
"GDP growth in the U.S. at 1.5% to 2% is anemic," he said. In Europe, he said, "every major country is showing negative year-over-year comparisons.
"We went through the toughest recession in our lifetime and we went through a European Union issue that has shaken the world's confidence. And yet, we navigated through those pretty well.
Analysts remain cautious.
"I'm looking for only modest improvement for the rest of this year," said Bill Whyman, tech analyst with International Strategy & Investment. "We know Europe is weak, but one of the biggest changes is how much growth is slowing in China.
In June, Whyman met with more than 20 tech firms, telecom company execs and economists.
"I was struck by how much the economy seems to be slowing," he said. This perceived slowness didn't show up in Cisco or Net-App's earnings report, he said, "But it's one of the biggest changes in the last three to six months.
He added, "We don't have the clarity in terms of economic data in China that we do in other countries," he said.
Taiwan — a major tech manufacturing hub — has been signaling weakness. In July, global sales at 30 Taiwan tech companies fell 1.4% from June, though they rose 1.4% vs. a year earlier.
New Stuff, New Hope There are a few positives on the horizon. Microsoft (MSFT) is slated to launch its latest operating system in Q4. Apple (AAPL) is expected to unveil its latest iPhone next month. Analysts also anticipate a demand from new super-slim, lightweight "ultrabooks" that Intel is aggressively promoting.
Another big boost could come from businesses that are holding on to large amounts of cash.
"They have the financial wherewithal to spend, but they want more confidence on the growth outlook," Whyman said.