Cisco Shares Tumble As Brokerage Cuts Estimates

Wachovia Securities said Cisco's revenues could fall as much as 5 percent in the current quarter from the last quarter. Cisco shares fell $1.26 to close at $14.24 on Nasdaq.

That warning reverberated with investors since most analysts have expected Cisco revenues to tick higher in the April-ending quarter. That, in turn, would be read as a sign that the worst is over for network equipment vendors after a brutal 2001 during which telecommunications carriers and businesses slashed capital investment.

Wachovia analysts warned in a research note that near-term uncertainty in business conditions was "causing many customers to put things on hold." They also cautioned that the potential for lower revenues had not been priced in to Cisco's share price, despite eight straight weeks of losses.

Wachovia projected that Cisco's revenues for the April ending quarter could fall to $4.575 billion, from $4.8 billion in the prior quarter. The average Wall Street estimate has been for revenues to edge up to $4.864 billion, according to Thomson Financial/First Call.

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Telecommunications carriers and Internet service providers last year slashed spending on network gear, spurring equipment makers to look for revenues from corporate accounts instead.

But those sales could be weaker than expected, said Tad LaFountain, an analyst with Needham and , an investment bank.

"There will be a tug of war over the next several quarters between the need to restore financial health and the need to invest in technology," LaFountain said.

CASE OF WISHFUL THINKING?

After a brutal 2001, investors in networker shares have been desperate to hear that the worst is over and that current-quarter revenues could hold steady or tick higher from the prior three months.

That led to wishful thinking about the short-term outlook for network gear makers, so when negative reports such as Wachovia's are released, skittish investors run for cover, LaFountain said.

"I covered the semiconductor industry for a long time and my take was that it needed less silicon and more lithium. The same could be said for this sector," LaFountain said.

"The enterprise market may not be as healthy as people had anticipated," another Wall Street analyst said. "Investors are trying to hang their hat on something."

Wachovia analysts cited the enterprise market as the reason for their lowered estimates.

"Rather than investing now for longer-term savings later we are seeing a shift to achieving savings now and deferring project spending indefinitely," they wrote. "To reflect this conservatism, we are reducing our sequential growth assumption for Cisco's enterprise business in April from up 2 percent to down 5 percent."

"We have become increasingly concerned that even further reductions in service provider spending will affect the company's results adversely," the analysts added.

Cisco shares could test the $10 to $12 range, Wachovia said.

That cautionary note came a day after Cisco Chief Financial Officer Larry Carter told an investor conference in Tokyo that the company saw "good signs" that recession is coming to an end in the United States, although corporate chief executives are being conservative with capital spending.

Enterprise spending seemed to have "stabilized," he said, adding that Cisco was still cutting costs by reducing its payroll through attrition.

REUTERS

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