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Cisco shares drop on tech spending worries

05/10/2012 | 11:03am US/Eastern
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(Reuters) - Shares of Cisco Systems Inc (>> Cisco Systems, Inc.) slid more than 9 percent in early trading after the network equipment maker's disappointing outlook exacerbated worries about government spending in the United States and Europe.

(Reuters) - Shares of Cisco Systems Inc (>> Cisco Systems, Inc.) slid more than 9 percent in early trading after the network equipment maker's disappointing outlook exacerbated worries about government spending in the United States and Europe.

Cisco's shares ? among the top percentage losers on the Nasdaq on Thursday morning ? touched a low of $17.02 in their sharpest fall in more than a year. It was also the most traded stock on the exchange.

Brokerages including BMO Capital Markets, Deutsche Bank, Nomura Equity Research, UBS and Mizuho Securities cut their price targets on the company's shares.

"Cisco's results highlight a difficult IT spending environment but pockets of growth should appear in the second half of 2012 with a hopeful resumption of telco spending," Piper Jaffray analyst Troy Jensen said in a research note.

Jensen maintained his "neutral" rating on the stock, citing limited visibility into the company's growth prospects, but lowered his price target by $1.00 to $20.

According to Thomson Reuters StarMine, nine analysts rate Cisco stock a "strong buy," 15 rate it a "buy," 19 have a "hold" and only two rate it a "sell." The mean price target on the stock is $22.58.

Cisco said it was difficult to predict second-half performance.

"We continue to see the impact of the areas of concern we have discussed for the last few quarters ... Europe and the global economy, India, and conservative IT spend as reflected in the commentary of our peers," CEO John Chambers said on a conference call with analysts on Wednesday.

Shares of rival network equipment maker Juniper Networks Inc (>> Juniper Networks, Inc.) were down 4 percent on the New York Stock Exchange.

Technology bellwethers such as IBM Corp (>> International Business Machines Corp.), Intel Corp (>> Intel Corporation) and Oracle Corp (>> Oracle Corporation) have also made cautious comments about tech spending by governments and businesses.

Chambers, Cisco's legendary helmsman, said a year ago that the company ? once a Wall-Street darling ? had "lost its way," as it struggled with a business that had grown too big and unwieldy over the years.

On Wednesday, he said the continued pressure on government and business budgets was hurting sales of Cisco's telepresence products ? part of the video business that the company has picked as one of its new pillars of growth.

A telepresence system is a suite of applications and products that enhances videoconferencing quality.

Shares of videoconferencing rival Polycom Inc (>> Polycom Inc) slipped nearly 5 percent to $12.06 on the Nasdaq.

(Reporting by Fareha Khan and Sayantani Ghosh in Bangalore; Editing by Tenzin Pema And Joyjeet Das)

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