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TraderBerlin
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Over 7 years of investing trading in global equity markets. Fundamentally driven swing trader.
  • Did Cisco just make a dog of the whole networking sector? 0 comments
    May 12, 2011 5:23 AM | about stocks: CSCO, JNPR, FFIV, RVBD, HPQ
    Cisco's earnings results yesterday and the conference call outlined that the 800lb gorilla in networking sector is hurt and hurt badly.

    My takeaway from the call are following:
    1. There is a massive price competition in switching business (Quote: "To achieve same revenue, you gotta sell 2-3 times more")
    2. Cisco took off long term growth target of 12-17%
    3. Cisco is trying to streamline its organization structure and is ready to chop jobs starting this summer.
    4. Cisco is still the leader in lots of spaces, but is being hurt by lots of nimbler companies and also by large new players like HP.
    5. Cisco earns 20% from government sector and this is going to be an area of trouble for foreseeable future.

    One might be tempted here to take a plunge in Cisco stock as on every historical valuation matrix it looks cheap. However, what became clear from the call is there is no catalyst in the coming quarters (+2% revenue guidance, a joke) to expand the multiples of the stock. For me the stock is dead and could languish between $15-18 for months to come. So, stay away!

    Bigger picture, I hear commentrators think the only investible idea is competitors who are eating Cisco's lunch like Juniper even HP. I think, it could be a big mistake. If Cisco is ready to play the price competition game it could push down the whole sector. So, even though the competition might win against Cisco, the margins could be compressed. This makes the whole sector vulnerable.

    I would continue to monitor the conference calls of the competition and understand if my thesis is untrue and base future position on that. For now, I am staying away the whole sector.




    Themes: Networking Stocks: CSCO, JNPR, FFIV, RVBD, HPQ
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