Why Cisco Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of networking giant Cisco Systems (NAS: CSCO) have plunged by as much as 11% today after the company reported earnings, but its soft guidance spooked investors.

So what: Revenue rose 7% to $11.6 billion, and non-GAAP net income came in at $2.6 billion, or $0.48 per share. The real reason for the drop relates to comments that CEO John Chambers made on the subsequent conference call with analysts, sparking fears of a slowdown in technology spending.

Now what: Cisco's orders in Europe were flat compared to a year ago, while business at large enterprises slipped 1%. Chambers said that there was "significant uncertainty" in the macro environment, adding, "Each of these areas has proven to be as challenging as we anticipated and several, Europe and customer conservatism, have gotten worse." He noted that while Cisco isn't predicting a major downturn, deals are taking longer to close as buyers remain cautious.

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At the time thisarticle was published Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Cisco Systems. 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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