Optical/IP Networks

Cisco Reseller Throws Cold Water

A Cisco Systems Inc. (Nasdaq: CSCO) reseller confirmed today what investors have feared for the past few months. The first quarter of 2003 is likely to be weak in terms of enterprise IT spending.

Today, Dimension Data Holdings plc, a global IT reseller specializing in providing and managing IT infrastructures, with an emphasis on selling Cisco equipment, announced that six-month results ending March 31, 2003, will fall below plan.

Dimension blamed weak sales in Asia, specifically China, and in the U.S. Product volumes and gross margins have both suffered in the U.S., according to Dimension. The firm blames these declines on intense competitive pressures and continuing economic weakness.

Buzz that the enterprise networking market is weakening has been growing for several weeks. One reliable Wall Street source has heard that Cisco's quarter will be weak "across the board." Other analysts say they've heard the same.

“We’ve been saying that the first half of ’03 was going to be weak for months,” says Stephen Kamman, an analyst with CIBC World Markets. “This should come as no big surprise to investors.” ”It confirms what we were already expecting,” says Alex Henderson, an analyst with Salomon Smith Barney, who published a research note on the news. In terms of the numbers for Cisco’s current quarter, Henderson says he believes that Cisco will still be in line with expectations. Cisco’s earnings are expected to dip roughly 2 to 3 percent this quarter (see Cisco Profits Up, Outlook Down).

The macro-economic conditions in the market could also affect other enterprise routing switching players, like Extreme Networks Inc. (Nasdaq: EXTR) and Foundry Networks Inc. (Nasdaq: FDRY).

But because of their relative small size compared to Cisco, Foundry and Extreme could end up having decent quarters, says Kamman. Foundry actually beat expectations last quarter (see Foundry Posts Q4 Results). While Foundry has indicated that it expects revenues to remain flat in the first quarter of 2003, around $86 million, there is always the possibility the company could surprise the Street once again.

Analysts report that Foundry’s sales have tracked well through January and February. With only one month left before the end of the quarter, the company could close a couple of large contracts that would edge it ahead.

Foundry of course, is not saying a word about the coming quarter. But its marketing department is still gloating about last quarter.

“Our business has historically been strong,” says Adam Stein, director of corporate marketing. “Unlike a lot of other companies in this market, we have remained profitable for the past four years. The reason for that is a focus on best-in-class products and execution of our business.”

Cisco closed today down $0.26 (1.89%) to $13.48; Extreme closed down $0.12 (2.75%) to $4.25; and Foundry closed down $0.09 (1.00%) to $8.90.

— Marguerite Reardon, Senior Editor, Light Reading
BobbyMax 12/5/2012 | 12:29:58 AM
re: Cisco Reseller Throws Cold Water Many enterprises cannot buy indefnitely from Cisco. The downfall in the Cisco equipment purchase is occuring because the enterprises have no money to buy equipment from Cisco. During the early years, Cisco had monopolized the market. Also its prices have much much high.
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