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Cisco hit on same old financial story

Stock in the networking equipment giant trades lower on financial information that analysts said was misconstrued as a warning concerning the firm's future growth.

High-flying networking giant Cisco Systems today is bearing the brunt of investor skepticism.

Stock in Cisco traded lower this afternoon on financial information that analysts said could have been misconstrued as a warning concerning the networking equipment firm's future growth.

Cantor Fitzgerald chief market analyst Bill Meehan downplayed the information, saying the company has talked about slowing sales in quarterly reports, according to Reuters. "This is not new news," he told the news service.

At issue is language found within Cisco's most recent filing with the Securities and Exchange Commission, a so-called 10-Q document that provides information regarding the company's fiscal first quarter for 2000.

The report reads, "We expect that in the future, our net sales may grow at a slower rate than experienced in previous periods, and that on a quarter-to-quarter basis, our growth in net sales may be significantly lower than our historical quarterly growth rate. As a consequence, operating results for a particular quarter are extremely difficult to predict."

Although the information seems to have scared many investors out of Cisco's stock, the language isn't much different from that found in prior 10-Q filings. For example, Cisco executives wrote in an SEC document for the first quarter of 1999:

"The Company expects that in the future, its net sales may grow at a slower rate than was experienced in previous periods, and that on a quarter-to-quarter basis, the Company's growth in net sales may be significantly lower than its historical quarterly growth rate. As a consequence, operating results for a particular quarter are extremely difficult to predict."

For the first quarter in 1999, Cisco reported a 34 percent increase in sales. Since then, the company reported a 33 percent sales jump in its second quarter, a 33 percent rise for the third quarter and a sales increase of 38 percent for the fourth quarter. In its most recent quarter, Cisco said sales increased 49 percent.

Companies often cite a laundry list of issues that might have a negative impact on their future prospects in quarterly reports. The factors tend to be somewhat unpredictable, such as new competition, changing technologies or economic and market fluctuations. In many cases, these warnings are intended to shield companies from any legal action by investors if the company stock price drops unexpectedly.

Cisco made a similar set of statements concerning its growth margins, but again, the language mimics previous filings.

In its latest first-quarter filing, Cisco said its gross margins decreased to 64.8 percent from 65.5 percent in the year-ago quarter.

The decline was primarily due to the company's continued shift toward lower-margin products and persistent pricing pressure from competitors, Cisco said.

Pete Solvik, Cisco's chief information officer, speaking at a conference in New York this morning, downplayed the warning. "We're not changing our guidance regarding our earnings," he said.