Here, we use Cisco Systems (CSCO) as an example, which missed earnings expectations and tempered its tone on the technology market versus the prior quarter. The markets pulled back yesterday and the WSJ published the following headline story last night
- Dow's Losing Streak: 3 Days: Stocks declined for a third straight session as economic warnings from weekly jobs data and Cisco Systems added to investors' concerns about a possible double-dip recession.
- Cisco Systems (CSCO:NYSE) downgraded at BMO from Outperform to Market Perform. $23 price target. Estimates also cut, as business momentum has stalled.
- Cisco Systems (CSCO:NYSE) estimates lowered at Morgan Stanley through 2012. Company is seeing lower gross margins, but spending more and facing a higher tax rate. Equal-weight rating.
- Cisco Systems (CSCO:NYSE) downgraded at Oppenheimer from Outperform to Perform. Company reported a mixed quarter and has a soft outlook.
Back to Cisco: we recommend reviewing the company's results, Webcast, and earnings presentation. We don't have time to share all of the details or key slides, but a quick perusal reveals impressive growth:
The other slides around geographic and product performance are worth a look. Even "U.S. and Canada orders were up approximately 20% Y/Y.
BUT, here are the slides/commentary that caused most consternation:
The Market fixated on the "unusual uncertainty" comment and guidance that was just slightly lower than expectations - from management commentary: "For Q1 FY11 we anticipate total revenue to be up approximately 18-20% year-over-year."
We could discuss a few more things, including Cisco's focus secular growth areas such as video (read: related to our Sonic Foundry thesis), but need to wrap this up for now. CNBC featured CEO John Chambers yesterday morning, giving him an opportunity to put on his helmet and body armor, and defend his Thursday commentary. Give a look and you be the judge - how bad are things, really?
Note some of his commentary:
- "awesome quarter"
- "in terms of economy, we share what we're hearing from our customers"
- "seeing very gradual recovery"
- "customers hesitant about hiring, new jobs, and capital spending [but still expecting growth, maybe somewhat lower than pace anticipated several months ago]"
- "added 2,000 new employees last quarter, 70% in U.S."
- "adding several thousand employees over next several quarters"
- "feel very good about our future"
- "think stock will take care of itself if we do those [growth numbers]"
- "optimistic about future of U.S., I think we're on beginning of decade long productivity run"
Yet, per our prior posts, growth is better than no growth and most companies are seeing stable to better results. Some, like Priceline.com, Sonic Foundry, and even Macy's are beating expectations. Plus, small industrial companies like WD-40 (WDFC) are also raising guidance and global shipping companies are posting solid results on the recovery in global commerce. We'll come back to this last point in a future post.
Disclosure: long SOFO.
© 2010 Jeffrey Walkenhorst
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