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Cisco downgraded ahead of meeting

Competition from smaller networking players and delays in a global economic recovery will take their toll on the networking giant, an analyst says.

An analyst downgraded his rating for Cisco Systems stock on Monday, a day before the company's annual analyst day.

Companies selling less-expensive routers and switches, and delays in global economic recovery beyond 2003, will take their toll on the networking giant, John Wilson, an RBC Capital Markets analyst, wrote in a note to clients.

Cisco on Tuesday will be conducting a full day of presentations to the financial community about its expectations and strategies for the coming year. Wilson believes the company won't alter its projection of a third-quarter revenue that's either the same as last quarter's or down between 3 percent and 4 percent.

"Although 'analyst day' theoretically presents an opportunity to upgrade its guidance, we believe management will keep second-quarter guidance unchanged," Wilson wrote. In the same note, he downgraded the stock from "outperform" to "sector perform."

A Cisco representative had no immediate comment.

The slow global economic recovery, one of the reasons Wilson cites for Cisco's less-than-stellar expected performance, has affected every company. But technology providers, including Cisco, are being hit hard with a slowdown in spending by companies on networking equipment.

To fight its way out of the slump, Cisco has focused more of its energy on entering new markets such as storage networks, which allow every computer in a company to be backed up with a networked set of storage drives.

Research firm Gartner Dataquest estimates that the market for so-called storage area networks (SANs) increased 13 percent last year to $1.46 billion.

Cisco is a relative newcomer to that market. The company in August announced plans to purchase privately held Andiamo Systems in a deal worth as much as $2.5 billion. Cisco is expected to debut a new line of products based on Andiamo's equipment by year's end.

Brocade Communications Systems remains the market leader in SANs, accounting for 34 percent of sales, followed by McData and Emulex, according to Gartner.