At first, point out the Dow’s larger drops. Boeing plunged as much as 2.8% due to a disappointing second-quarter report. Likewise, heavy-machinery builder Caterpillar dropped as much as 1.6% on some very specific news.
Cisco’s fall is a different story. The company itself has nothing but cheerful news to share today. Cisco is opening and innovation center in Barcelona, Spain, as part of its Smart+Connected Communities program. Searching for the next big Internet of Things idea, Cisco is accepting applications for an entrepreneurship residence in Europe. And the company wants you to know that Cisco technologies help Brazilian stockbrokers trade faster.
No big growth catalysts there, but also nothing worth giving Cisco shares a 1.5% haircut over.
Instead, Cisco’s weakness comes from sector rival Juniper Networks, which reported second-quarter results last night.
Juniper's earnings came in just a hair below analyst estimates, and it followed up with soft third-quarter guidance. The stock saw one immediate downgrade on the news, and two other analyst firms lowered their Juniper price targets.
Juniper shares plunged as much as 11.4% on this barrage of bad news. Cisco simply got caught in the collateral damage, alongside many other networking gear specialists.
But is there any reason to draw industrywide conclusions from Juniper's terrible day? Let's dive into those negative analyst notes on Juniper's quarter.
· Piper Jaffray said the networking market seems destined for "low-mid single-digit growth," which reduced analyst Troy Jensen's enthusiasm for Juniper.
· Goldman Sachs pinned Juniper's bad trends on soft infrastructure spending at America's largest telecom carriers. This market weakness "was likely due to M&A activity under way," said Goldman analyst Simona Jankowski.
· Bank of America/Merrill Lynch also noted the lagging carrier sales, but worried about shifting market shares in the networking sector. Specifically, analyst Tal Liani cited Cisco's refreshed product portfolio, which seems poised to steal orders from Juniper.
So Juniper's troubles uncovered a sluggish environment of telecom-level network upgrades. That's bad for everyone: Cisco is just coming back from several quarters of negative year-over-year growth in the service provider market, and it could use a respite from flagging telecom sales.
However, Cisco already said that it expects a few more quarters of these telecom downticks, so there's nothing new about Juniper's revelations if you've been listening to Cisco's own comments. Moreover, Liani underscored the strength of Cisco's new long-distance routers. That puts pressure on Juniper to fight back with profit-sapping discounts while Cisco reaps the benfits of holding the hot ticket for a while.
The markets most certainly shouldn't slash Cisco's shares by 10% based on Juniper's soft report and timid market commentary. But even if Cisco is winning share in a struggling telecom infrastructure market, the overall sector softness seems likely to hold this important segment back for another few quarters.
All things considered, Caterpillar and Boeing deserved their noogies even more, but today's 1.5% drop looks like a fairly appropriate slap on Cisco's wrist.
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