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Cisco Gains Vs. Rivals, but Not Much
 11/06/2001 CHICAGO (Reuters) - Networking giant Cisco Systems Inc. (Nasdaq:CSCO - news) picked up small amounts of business at the expense of rivals in its latest quarter, but analysts said on Tuesday that the gains were modest. Like its smaller rivals, Cisco has been hit by a slump in telecommunications spending, and Wall Street has been looking to the No. 1 maker of the gear that powers the Internet for signs of a turnaround in the market. ``Everyone I talk to in the company ... they are very much realists. They are saying (Cisco Chief Executive John) Chambers can say whatever he wants, but business is not getting better,'' Justin McNichols, portfolio manager with San Francisco asset management firm Osborne Partners Capital Management, which owns Cisco shares. ``At best, we're going to troll the bottom for a while,'' he said. ``Luckily, they're well managed and have a lot of cash. There aren't many people better than Chambers as far as spinning, and he spun this one into the ground.'' Chambers mentioned several times on a conference call with analysts after the company reported its earnings on Monday that San Jose, California-based Cisco had boosted its market share. ``It isn't so much surpassing expectations in the quarter, but getting a base underneath us,'' he told Reuters on Monday. Executives and analysts specifically mentioned rival Juniper Networks Inc. (Nasdaq:JNPR - news) as one company Cisco retook a small amount of share from in the high-end router market during its fiscal first quarter ending Oct. 31. Juniper officials declined to comment. On Monday, Cisco posted earnings, before a number of one-time items, of $332 million, or 4 cents a share, topping the previous quarter and Wall Street's forecast of a 2-cent gain. Sales for the quarter also topped Wall Street's expectations and rose from the previous quarter, the first time that has occurred this calendar year. On Tuesday, the American Stock Exchange Networking (^NWX - news) index gained 2.65 percent, to 303.64. Cisco's stock closed up 57 cents, or 3 percent, at $18.47 in Nasdaq trading. Since the beginning of the year, it has outperformed its peers in the American Stock Exchange Networking index by about 20 percent. Some analysts and investors took Cisco's quarter-to-quarter gains as a possible sign the bottom was approaching in the bloodied networking sector and things could get better soon. In response, several analysts on Tuesday raised their Cisco estimates and boosted their ratings on the stock. However, other analysts warned not to make too much of the market-share gains, which were on the smaller side. They said Cisco benefited in the quarter mostly through increased U.S. government spending, strength in European corporate spending and overall services business, and interest income generated on its $19.1 billion cash hoard. Domestic business continued to be weak. Cisco's market-share gains were more modest than the previous quarter, said C.E. Unterberg, Towbin analyst Martin Pyykkonen. ``I kind of discounted the comment that they took a lot of market share,'' he said. Cisco has made no gains whatsoever this year with telephone carriers -- also called service providers -- a sector served heavily by Lucent Technologies Inc. (NYSE:LU - news) and Nortel Networks Corp. (NT.TO)(NYSE:NT - news), said Dresdner Kleinwort Wasserstein analyst Ariane Mahler. ``They have had wins with service providers only in the emerging category, names I can't even believe they're mentioning,'' she said. ``It's not something that's going to help their valuation,'' Mahler added. ``What will help is if they go from 3 percent market share with service providers to 10 percent market share, and they're not.'' SoundView Technology Group analyst Ilya Grozovsky said while Cisco's market share gains were welcome, they are with existing customers and not new ones. ``The wow factor is somewhat smaller,'' he said. In addition to Juniper, Cisco also likely made tiny gains against other smaller competitors, including Extreme Networks Inc. (Nasdaq:EXTR - news), Foundry Networks Inc. (Nasdaq:FDRY - news), and Enterasys Networks Inc. (NYSE:ETS - news), analysts said. Juniper's stock finished down 15 cents at $22.43 on the Nasdaq, while the other three stocks all rose. Juniper shares have rallied since touching a year-low of $8.90 on Sept. 27. ``The bigger picture here is that enterprise and carrier customers are really gravitating toward the incumbents,'' J.P. Morgan H&Q analyst Jeffrey Lipton said. ``They're just not necessarily sure what the prospects of some of the smaller suppliers will be.'' News Archive | |
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