Oracle beat the Street, while Cisco under achieved. But why? I examined both Oracle (ORCL) and Cisco (CSCO) and found that they both bore strong correlations to IT spending and the S&P 500 (Both levers are currently trending up for the year). What irked me was why Oracle was performing above and beyond expectations, while Cisco was floundering. I found that the difference between the two tech giants was in their client base. Cisco is much more exposed to the US public sector than Oracle. 20% of Cisco’s revenue was derived from state and local governments which are trimming budgets bare.
Good for ORCL, bump in the road for CSCO - bit.ly/eBSXdq
Where Cisco once stumbled, could gradually become an opportunity. IT spending is expected to start trending higher in 2011. I personally believe these estimates are a little conservative, but I agree with view that growth in IT spending will be driven by cost cutting measures by both the public and private sector. Companies and governments recognize that maintaining their own IT services has just become far too expensive. Opting to the services of cloud computing mercenaries is simply cheaper. This trend in cutting cost also moves across the board to other services such as video conferencing which is far cheaper than travel costs and allows companies to expand into new markets just as effectively. Go figure: teleconferencing is a pillar in Cisco’s business strategy. With this in mind CSCO should start to catch up to ORCL in 2011.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.