MKM's Michael Genovese, who downgraded Cisco (CSCO -0.6%) to Neutral this morning, says checks indicate the emerging markets weakness the networking giant saw in FQ4 (the July quarter) has continued in FQ1, and that the government shutdown (now set to end) has hurt U.S. enterprise spending.
Genovese notes Cisco "tends to outperform when the y/y product order rate is accelerating," and notes this isn't the case following FQ4. Shares are up 23% since he upgraded Cisco to Buy a year ago.
At the same time, Genovese thinks rival Juniper (JNPR +4.1%), which has been upgraded to Buy, is about to see accelerating growth for its carrier ops (65% of revenue) thanks to improving core router/switch growth (as indicated by checks) and share gains for newer products such as the T4000 and PTX core router lines.
Cisco recently launched its NCS core router line to take on the PTX in a growing market for core routers that have more flexibility to handle diverse traffic loads than traditional hardware.
Juniper's service provider sales rose 7% Y/Y in Q2; enterprise sales rose 8%.