As the American economy continues to recover at a painstakingly slow pace, some sectors have been pegged as the likely leaders to pull the country out of the economic malaise. One of the most cited sectors with the potential to turn things around is of course technology, where a bevy of new products and systems have boosted component companies in a variety of corners of this dynamic industry. Beyond the giants of Apple, IBM, and Microsoft, one company, with a special focus on the networking and information technology segment, continues to be a crucial one in providing a market outlook for the technology sector: Cisco Systems (Nasdaq: CSCO). The Bay Area-based DJIA component has had a far rougher year than many of its peers in the space as turbulence in the summer and mid-November sunk the company's stock, pushing the firm to an 8% loss over the past 52 weeks, a pitiful return considering that the broad Nasdaq market gained more than 29% over the same time period. The main cause for this tumble was an extremely weak earnings report in November in which the company warned investors to expect poor revenues because of declining government spending, helping to push the stock down by close to 20% in a matter of days after the announcement [also read Three Tech-Heavy International ETFs].

Unfortunately for shareholders, these predictions of a weak quarter came to fruition after the bell last night, causing a sharp sell-off in this now troubled company. In the most recent quarter, Cisco was expected to post earnings of 35 cents a share on revenues of $10.3 billion, but the company only managed to post earnings of 27 cents a share on forecast-beating revenues of $10.3 billion instead. 

Clearly, one of the main problems for the company was declining profit margins and a changing product mix, which has made it difficult for the company to keep up with analyst expectations for growth. The company saw its gross margins decline by almost 4.2% and cash flows were more or less flat for the quarter at $2.6 billion, while comments from the company's CEO, John Chambers, highlighted the difficulty in switching the focus of its products as well, as the executive discussed a 7% drop in sales for its key switching unit division. "While I strongly believe we are very well-positioned versus our competition, we are in the middle of a major product transition, with dramatically higher price performance from these new products and architectural advantages versus our prior generation of products and that of our competitors," Chambers said on a conference call [see all the ETFs in the Technology Equities ETFdb Category].

However, one bright spot presented itself for the company; CSCO issued revenue guidance on the high-end of Wall Street estimates, predicting growth of between 4% and 6%, suggesting that the company should be able to match analyst expectations of 4.0% growth in revenues for the quarter. Nevertheless, Cisco saw its shares sell off heavily in the after hours market last night; CSCO was down more than 10% at one point before clawing back roughly half a percent to finish down almost 9.5%.

Thanks to this key earnings report as well as Cisco's bellwether status in the technology industry, investors should look for the iShares Goldman Sachs Network Index Fund (NYSE: IGN) to remain in focus throughout Thursday's session. In addition to a 9.0% weighting to Cisco, IGN also offers investors heavy exposure in a number of well known tech giants such as Qualcomm (9.3%), Juniper Networks (8.7%), and Research In Motion (8.1%). In total, the iShares fund invests in 25 companies with the lion's share of the assets going towards American firms in the large- and mid-cap market segments [see Internet ETFs: Five Ways to Play].

So far in 2011, IGN has performed pretty well, gaining 11.6% since the start of the year and a robust 9.8% over the past two weeks alone. These gains come after the fund posted an impressive surge over the last 52 weeks as well; IGN gained just under 47% during that time period. However, given the extremely disappointing report from Cisco, investors should look for a rough start to trading in IGN and the broad tech sector to start Thursday's session, especially in the networking and IT segment of the industry [see Ten iShares ETFs Every Investor Should Know But Most Don't].

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Juniper Networks is a Motley Fool Big Short short-sale pick. Microsoft is a Motley Fool Inside Value recommendation. Apple is a Motley Fool Stock Advisor recommendation. The Fool has written puts on Apple. The Fool has created a bull call spread position on Cisco Systems. Motley Fool Alpha has opened a short position on Juniper Networks. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, International Business Machines, Microsoft, and QUALCOMM. Motley Fool Alpha owns shares of Cisco Systems. 

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