Cisco Drops 2.1% on Report of Slowing Sales

Cisco Systems Inc. shares fell 2.1% Wednesday after tumbling earlier in the day on a report that sales growth at the top maker of Internet equipment was slowing. Cisco’s cautionary statement had been reported in previous filings with the Securities and Exchange Commission.

Cisco shares fell $2.06 to $95.88 on Nasdaq, but bounced back from a low of $92.88 in trading of 45.7 million shares, making it the second-most active stock in U.S. markets.

The morning plunge came after cable-television station CNBC reported that Cisco said its growth rate for sales could slow, citing a report by Reuters. Cisco made the same warning in filings that date back to October 1996. The events highlight how any hint of trouble can hurt shares of a company with a high valuation, analysts said.

“People are very sensitive on Cisco,” said Hambrecht & Quist analyst Michael Neiberg, who rates Cisco a “buy.” “When some people come across [Cisco’s standard caution] for the first time and don’t know how to handle it, it can spook the markets.”

The company’s shares have more than doubled this year and now trade at 96 times expected profit in the fiscal year that ends in July. Its sales growth has accelerated for seven straight quarters.

“Our guidance for the quarter and year remains exactly the same. I think we’ve used the exact same language,” Cisco spokesman Doug Wills said. “It’s not news.”

Cisco’s filing for the quarter that ended Oct. 30 states: “We expect that in the future, our net sales may grow at a slower rate than experienced in previous periods, and that on a quarter-to-quarter basis, our growth in net sales may be significantly lower than our historical quarterly growth rate. As a consequence, operating results for a particular quarter are extremely difficult to predict.”

The Cisco statement is part of a series of standard warnings that the San Jose-based company includes in its quarterly reports that outline possible risks for investors, such as the loss of key employees and the unpredictable nature of the worldwide economy.

Analysts already expect a slowdown in Cisco’s sales growth. Revenue is forecast to rise 39% to $16.9 billion in fiscal 2000 and 37% to $23.1 billion in fiscal 2001, according to First Call. That compares with a 43% jump in fiscal 1999.

Sales in Cisco’s fiscal second quarter that ends Jan. 29 are expected to rise 41%, followed by increases of 36% and 32% in the two subsequent periods, based on a First Call poll. That compares with a 49% increase in Cisco’s fiscal first-quarter revenue.

Last month, Chief Executive John Chambers reiterated his forecast that second-quarter sales and earnings will be unpredictable because of concerns that the Year 2000 computer bug could cause computers to malfunction.

Sales to corporations, government agencies and educational institutions, which account for half of the company’s revenue, will be “flat to down” in the second quarter from the first quarter, Chambers said at the time.

Revenue from telecommunications and cable companies and from Internet service providers will probably maintain its growth pace, Chambers said at the time.

Cisco is expected to earn 23 cents a share in its second quarter, the average analyst estimate from First Call. Excluding acquisition charges, Cisco earned 18 cents a share a year earlier, while net income was 8 cents.