Tech sector gains on Cisco's good news
In the words of Willy Wonka, "So shines a good deed in a weary world." Cisco Systems offer of hope for the tech sector could be considered a good deed by investors, the news lifted the cloud of gloom that has been hanging over tech stocks for several months.
The telecom equipment maker's third-quarter profit exceeded forecasts, sending not only Cisco's stock up, up, up, but the Nasdaq combined composite index as well. The Nasdaq ran up more than 96 points in mid-day Eastern Time action to 1,670.41.
For the quarter ended April 27, Cisco posted net income of $729 million, or 10 cents a share, on revenue of $4.82 billion. In Q3 2001, Cisco reported a net loss of $2.7 billion, or 37 cents a share, on revenue of $4.72 billion. Analysts on average were expecting earnings of 9 cents a share, according to a survey conducted by Thomson Financial/First Call.
The company attributes market-share gains for its revenue increase. Cisco says it gained market share in Internet routing, LAN switching equipment, voice over IP and IP telephony, VPNs, enterprise wireless LANs and Internet security systems.
Looking ahead to the fourth quarter, Cisco expects revenue to grow in the low-single-digit percentages with flat or slightly lower costs.
Although the company provided no earnings target, it says its revenue goal is in line with Wall Street's expectations. Cisco CEO John Chambers believes the company hit a "home run" in the third quarter, but remains cautious about the future. "I remain cautious about the economy and service provider spending. CEOs remain in a show-me stage in terms of capital spending," he says.
Cisco's shares were up more than 20 percent to $15.82 as of 12:43 p.m. EDT — a much-need shot in the arm, as the company tries to beef up its stock price. Cisco's ray of sunshine also cast a positive light on its closest competitors. At one point in mid-day trading, Lucent Technologies Inc.'s shares were up more than 8 percent, while Nortel Networks' shares gained 7 percent.
While Cisco's results enthused Wall Street, yesterday's decision by the Fed to leave short-rates unchanged at 1.75 percent did not inspire the market.