Shares of Cisco Systems, the biggest vendor of Internet switches, traded around their 52-week low of $14.23 Monday, two days before it's expected to report fourth-quarter results. While the overall market also dropped, Cisco's report will be seen as a bellwether of overall Internet health.
Cisco isn't the only switch maker to be hammered lately. On Friday, smaller rival Brocade Communications said its results will miss earlier expectations. Brocade shares were down slightly Monday and shares of networking rivals Ciena and Juniper Networks also eased.
Analysts estimate San Jose, California-based Cisco will report fourth quarter earnings of 38 cents a share on revenue of $11 billion, compared with 43 cents on revenue of $10.8 billion a year ago.
UBS analyst Nikos Theodosopolous, who agrees with the overall estimate, says Cisco suffers from weaker demand from public sector and European customers. He also said the No. 1 vendor may be slashing prices to preserve market share, which trims margins. Brocade previously attributed part of its miss to lower public sector orders.
Cisco hasn't had an easy fourth quarter. Last month, it announced layoffs of 6,500 employees and close of a factory in Mexico with another 5,000 employees acquired when it bought Scientific-Atlanta for $6.9 billion in 2006 to sharpen its focus on video and enter the set-top and DVR markets.
Cisco, with a market capitalization of $85.2 billion, a far cry from an earlier era, has seen its shares decline 41% in the past year.
Theodosopolous, who rates Cisco neutral, and Ticonderoga Securities analyst Brian White both said checks of the current market indicate current demand has increased. But worries about a global slowdown as well as the strike by Verizon Communications workers could also hurt first-quarter performance.