As I suspected, too much options mania and Cisco (CSCO) could not meet the hopes and dreams of not only the wild eyed options speculators but the market in general . CEO John Chambers pegged the revenue outlook to 15% to 16% Q4 growth from the 20% rise seen in the April, or fiscal third quarter. Analysts had been expecting a full 16% rise in revenue for Q4.
So with Chambers guiding to slightly light vs estimates for the July quarter - no surprise the stock took a 5% drubbing as the conference call went on.
Stock futures are only modestly lower with a decline of less than 1 point this evening, but CSCO will likely cast a pall over a variety of computer networking related names on Wednesday. This is another reality check for those who think the U.S. economy is running on all cylinders. From Cisco's perspective its largest U.S. customers are "relatively sluggish" to borrow the words of Chambers. That's not to say we're about to enter the Great Depression tomorrow, but the outcome of this CSCO report shows that investor giddiness and what's really going on were, at least with CSCO, quite out of sync.
This lack of synchronization between reality and expectation also extends to the White Shoe firms. On 5/2 Goldman Sachs really got the speculative ball rolling after it said buy Cisco ahead of earnings. Goldmine really stoked the flames by stating that Q4 guidance would suggest upside to street estimates.
As the Cisco longs lament their likely losses, the Federal Open Market Committee will be looking at the overall economic data - a giant puzzle where Cisco is but one piece - and will see the sluggishness in the CAPEX arena. They'll also be looking at inflation pressures and by the time 2:15 rolls around on Wednesday we'll likely know again that the Fed decided to keep Fed Funds at 5.25% and will also likely give equal time in the statement to discussing both inflation risks and risks to economic growth.
Disclosure: long Cisco, Goldman Sachs
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