Cisco Holds Back the Dow and Tech

The Dow Jones (INDEX: ^DJI  ) is up about 0.5% today, a relatively modest gain. The big news everyone's keying in on is jobless claims. For the week that ended May 5, jobless claims fell to 367,000 -- just a sliver below the 368,000 recorded two weeks ago. Somehow, this blip of largely unchanged jobs data is being attributed to stocks moving upward. But it doesn't matter; it's noise. We know as little about the jobs market as we did before the numbers. The bigger thing to watch will be whether May's payroll number bounces back, and that won't come for almost another month.

Panic in the IT Sector
Instead, the larger news today is Cisco's (Nasdaq: CSCO  ) fiscal third-quarter earnings, which were reported last night. Cisco's down over 10% today, which is quite the drop for a blue chip IT company. The big bugaboo in their report that has investors running for the exits is weak outlook for the quarter ahead. CEO John Chambers said, "We sure don't like the trend in the enterprise IT spending." Dutifully, investors also sold off networking peers like F5 Networks (Nasdaq: FFIV  ) and Riverbed (Nasdaq: RVBD  ) . Even Oracle (Nasdaq: ORCL  ) was down 3.5% on the news. The IT spending world is about to fall off a cliff, haven't you heard?!

Take a breath
However, in the midst of investors selling off IT stocks, I have to give one piece of caution: We've seen this before. Go back and look at Cisco's chart over the past two years. Starting in early 2010 you'll see a series of peaks and cliffs. The peaks are optimism heading into Cisco's report; the cliffs are the disappointment after Cisco lets investors down. The cause of Cisco's poor performances and weak outlook across a series of disappointing reports is rarely the company itself, but is frequently the result of a nefarious economy hell-bent on ruining Cisco's "solid execution." Yet, since the beginning of 2010 Cisco is down nearly 29% while Oracle is up 9%, Riverbed up 48% even after a recent steep fall, and F5 is up an amazing 136%. Cisco's main saving grace is that peer Juniper is down a similar amount, about 32%.

The point? There are definitely some signs of enterprise spending slowing down this year. EMC projected global IT spending will be roughly halved in 2012 relative to 2011. However, we've seen this same game from Cisco before. The company has routinely cried foul on the global economy only to see its competitors and other large IT firms go out and keep doing the real executing. If you're selling technology today based on Cisco's weak report, I'd reconsider.

Keep searching for global opportunities
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Eric Bleeker owns shares of Cisco and EMC. The Motley Fool owns shares of Oracle, Riverbed Technology, Cisco Systems, and Apple. Motley Fool newsletter services have recommended buying shares of F5 Networks, Apple, and Riverbed Technology. Motley Fool newsletter services have recommended creating a bull call spread position in Apple and a stock position in Riverbed Technology. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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