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Cisco's optimism boosts stock

The networking-equipment maker's restructuring and financial outlook announcement is enough to keep investors interested.

Cisco Systems didn't say much about its future business during its restructuring announcement Thursday. But what it did say was enough for investors.

Thursday night, the networking-equipment giant overhauled its management structure and realigned its business to focus on specific technologies, as opposed to broad lines of business. But Friday morning, Wall Street was focused on the company's comments about future sales.

While Wall Street analysts were pleased with the changes, the big news was the company's confirmation of financial guidance for the first quarter.

"This is in line with our view that Cisco has already seen a turn to the positive in their U.S. enterprise business, and we are likely to see a rebound in European sales in the January quarter," wrote UBS Warburg analyst Nikos Theodosopoulos.

Morgan Stanley analyst Christopher Stix pointed to Cisco's decision to price the second half of its May option grant on Tuesday as another positive sign. "Cisco has historically been very good at issuing options when stock is at depressed levels," he wrote.

Cisco stock was up $1.49 to $18.25 Friday. The cautious optimism spread to other tech stocks; Nortel Networks was up 42 cents to $7.07, and JDS Uniphase rose 64 cents to $7.66.

The new organizational changes are combined with a management shake-up that includes the departure of Senior Vice President Kevin Kennedy, who oversaw the company's plans to enter the service-provider market.

Cisco Systems
Stock price from August 2000 to present.  
Source: Prophet Finance
Under the new organizational plan, Cisco will focus on 11 technology markets: access, aggregation, Internet switching, Ethernet access, network management, core routing, optical, storage, voice, wireless and Cisco's IOS Technologies Division.

The new structure met with approval from analysts, although most said it would do little to change the company's financial picture in the near term.

Cisco has been pressed by the same slowdown in the networking market that has hurt competitors like Nortel Networks and Lucent Technologies. Lucent, in fact, unveiled more details on its own restructuring Thursday, including the elimination of about half its work force, adding that it should be able to turn a profit next year.

Cisco's restructuring may actually be a sign that the worst is over, analysts said.

"The new organization structure has been under discussion for several months at Cisco, but the company was unable to finalize details until business prospects stabilized," wrote Merrill Lynch analyst Michael Ching. "Management believes that the completion of the majority of force management reductions as well as some improvement in business conditions, especially in the U.S., suggests that prospects have stabilized."