Monday, November 15, 2010

Troubled Company or Apocalypse Now?

The Cisco in the Coal Mine
Here’s why Cisco Systems’ bad financial news last week should (maybe) scare the hell out of you.

First, in case you missed it, here are the details of the announcement. On Thursday, Cisco stunned both the tech world and the stock market when it cut its sales forecast for the second quarter in a row. Worse, chairman and CEO John Chambers said that the company’s current situation is the result of outside forces beyond the company’s control – in particular, declining orders from cable companies and government agencies.

The market responded quickly and strongly to such depressing news from one of the linchpins of the U.S. economy: the Dow fell nearly 74 points, or 0.7 percent to close at 11,283.10. It could have been a lot worse – at one point in the day trading was down as much as 126 points.

Needless to say, Cisco stock was bloodied as well: it fell $3.97 (more than 16 percent) to $20.52. That instantly erased nearly $24 billion in worth from one of the world’s most valuable companies.

Still, having been buffeted by hard economic times for the last two years, the Cisco announcement was quickly assimilated as just the latest piece of bad news in what seems like an endless run of such bleak corporate announcements. What seemed at the beginning of last summer as the long-awaited start of a turnaround in the U.S. economy, now is beginning to feel like the beginning of a long malaise and a dishearteningly shallow recovery. Even the careful optimism coming from other tech bellwethers like Intel and Google (notably the across-the-board raises and bonuses at the latter) hasn’t been enough to raise spirits in the tech world.

And so, despite the Cisco announcement, both the stock market and the tech world ended the week about where it began, with an attitude of More of the Same. . .and awaiting that one message that will point which way the economy is going to go: towards recovery or a double dip; inflation or deflation, optimism or despair.
There's more. Read the whole thing and be afraid.

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