Cisco Systems Sinks in Sympathy


Shares of networking giant Cisco Systems are particularly weak today, having lost as much as 5% today and lagging the broader market. The reason for the pessimism is that networking peer F5 Networks announced preliminary figures last night that left a lot to be desired and have negative implications for the broader sector.

F5 expects revenue in the first quarter to be $350.2 million, far below the range of $370 million to $380 million that it had previously forecast. Both GAAP and non-GAAP earnings per share came in below expectations.

CEO John McAdam said the weakness was attributed to revenue shortfalls in the North American market, while sales in Europe, the Middle East, and Asia -- collectively known as EMEA -- were somewhat disappointing, too. Business in Japan and the Asia-Pacific region were on target. Telecommunications buying was down along with U.S. federal sales, the latter of which is related to sequestration.

On the ensuing conference call, McAdam said a lot of the sales shortfalls were related to timing issues, downplaying fears that the market for its application-delivery controller, or ADC, is maturing. Mizuho Securities analyst Joanna Makris believes F5 is losing some of its pricing power due to intensifying competition.

Rival ADC vendor Radware also issued disappointing preliminary results this morning, with its own revenue projected at $45 million -- also below its guidance. Radware said sales were strong in the U.S. market but cited weakness in EMEA and China for its weakness.

These two preliminary releases point to headwinds in the broader networking sector, and Cisco is just one of many networking companies under pressure today as investors digest the gloomy implications for the industry.

Last quarter, product sales were 78% of revenue, and the Americas geographical segment pitched in 59% to the top line. Any slowdown in IT spending, particularly related to the sequestration, will inevitably weigh on Cisco's results.

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Fool contributor Evan Niu, CFA, has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and F5 Networks. The Motley Fool owns shares of F5 Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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