Cisco's Earnings Plunge Weighs Down the Dow's Comeback

Cisco's Earnings Plunge Weighs Down the Dow's Comeback

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

The major U.S. stock indices are all rising in the afternoon session, with the Dow Jones Industrial Average pulling out of the red and posting a solid gain of 54 points as of 2:35 p.m. EST. Most of the Dow's member stocks are having good, if quiet, days by advancing slightly. However, Cisco plunged 3.7% in the wake of its earnings report yesterday, dragging down the index's progress with it. Let's catch up on what you need to know.

Cisco takes a beating
Cisco's fall today brough what had been a respectable start to the year for the tech stock to a screeching halt. Yesterday after the closing bell, Cisco announced that its fiscal second quarter revenue dove nearly 8% year over year, while the company's net income fell an even costlier 55% due to a major $655 million charge. While the revenue drop actually beat the company's projections of an 8%-10% dive, it's still a hefty blow for investors who have watched this networking giant struggle to find growth in today's evolving tech landscape.

Cisco did post some positive news. CEO John Chambers said the "Internet of Everything" could begin to help its financial performance; Chambers' forecast earlier this year was that this could be a $19 trillion market in coming years. Also, the company's third-quarter sales projections of between $11.2 billion and $11.5 billion actually fell around average analyst projections. Still, with competition intense, Cisco's quest to regain growth will remain elusive in the near term.

It's been a similar story that has plagued many of the older names in tech, as IBM has felt recently, although the tech stock has gained about 1% today to rank among the top Dow members of the day. IBM, the worst performer of the Dow over the past year, has seen revenue plunge as it looks to adapt to the changing landscape, and the company's sales fell 5% year over year in its most recent quarter. IBM will need to maintain the slow, single-digit percentage growth it saw in both its global business services division, where sales climbed 4%, and its traditional software unit if it wants to stave off further declines out of its plunging server business.

The big news today comes from outside the Dow. Comcast announced it would acquire rival cable company Time Warner Cable in a major move that will add a huge degree of consolidation into the cable industry across America. Comcast's stock has fallen more than 3.8%, but Time Warner's shares have climbed more than 7% in light of the proposed $45 billion deal. However, a regulatory review is ahead for the deal, as such a move will allow Comcast clear leadership in the area.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of International Business Machines. 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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