Cisco outlook rattles stock traders

The tech bellwether cut its sales forecast for the second straight quarter, sending its shares down 16.2 percent.

The Associated Press
November 12, 2010 at 2:52AM

NEW YORK - Stocks tumbled Thursday after a disappointing outlook from Cisco Systems Inc. rattled a market already on edge as an economic summit of world leaders got underway in South Korea.

Global leaders were sharply divided over currency and trade policies heading into the Group of 20 summit meeting in Korea, and a sense of pessimism was hanging over the start of the meeting of officials from rich and emerging economies.

The Dow Jones industrial average fell 73.94, or 0.7 percent, to close at 11,283.10, after trading down as much as 126 earlier in the day. The index has fallen on three of the last four sessions.

Cisco, one of 30 stocks that make up the Dow industrials, disappointed investors when it cut its sales forecast for the second quarter in a row, sending its shares down 16.2 percent to $20.52. That dragged down shares of other technology stocks and other Dow components. Hewlett-Packard Co. fell 2.4 percent, while IBM Corp. fell 0.8 percent.

"Cisco is clearly a tech benchmark," said Philip Dow, director of equity strategy at RBC Wealth Management. "With a second disappointment in a row, people are questioning if their business model is broken."

The computer network equipment maker said its revenue will rise by less than half of what analysts had predicted for its November-January quarter. There are worries that smaller competitors are cutting into Cisco's market share.

Technology shares have been among the best performing in recent months, with more companies investing in new technology coming out of the recession. Cisco's cautious forecast put a damper on expectations for broader growth in the sector in the coming quarters.

The Standard & Poor's 500 index fell 5.17, or 0.4 percent, to 1,213.54. The Nasdaq composite dropped 23.26, or 0.9 percent, to 2,555.52.

Volume was a bit lighter because of the Veterans' Day holiday. Bond trading was closed for the holiday.

ASSOCIATED PRESS

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