Wednesday, May 6, 2009

Cisco anticipates bottoming of capital spending

An interesting piece in WSJ; Cisco expects tech sales to stabilize/bottom out and given it's early reporting status, it's usually seen as a barometer for tech spending. ZH finds this interesting for a few reasons; one, tech spending tends to lag many other indicators but in this case it seems to be leading. It's particularly important to note that this is a first derivative indicator, not the second derivative BS that the market has been lapping up the past few months. 

Secondly, we have to apply the usual filters to public statements released by leaders of publicly traded companies and in this case, there is suspiciously little evidence beyond vague assertions that this is the flattening out. In support of this, is a statement buried at the bottom; "The company will continue to make cuts in the current quarter, but doesn't expect additional layoffs, he said." What else would you expect him to say? If you process the dollar amount of cuts already made ($1.5B) and number of layoffs already made (2,000), you have to wonder how much more they can cut without laying off additional people. However, ZH do not claim to be tech analysts so we'll leave it up to our readers to deciper John Chambers' statement.

Overall, this seems to be a half-hearted attempt to revive the Cisco stock price; the broader macro implications are important if true but we would prefer to see actual evidence or logical thought before we put on the party hats and spike the punch.
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