Analysis: Cisco spooks, but IT spending seen on the mend

Thu May 10, 2012 8:05pm EDT
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By Nicola Leske

(Reuters) - As a cautious outlook from Cisco Systems Inc pummels shares of the network equipment maker and its peers, it might be time to go bargain hunting.

Even as Cisco warned that technology spending by companies could be hurt by concerns about Europe, analysts say there is room for optimism. Pointing to last year's experience, some say tech spending may rebound in the second half, potentially boosting equipment makers shares again.

Morgan Stanley is advising its clients to start making bets in anticipation of a pickup in tech spending. Morgan Stanley analyst Ehud Gelblum recommends F5 Networks Inc and Qualcomm Inc, in addition to Cisco.

"In our sector upgrade last month, we called for this round of earnings to mark the last round of negative earnings revisions before an improvement in 2H," Gelblum said.

Research firm IDC forecast global spending on technology to grow 6.5 percent this year, after climbing 5 percent in 2011.

"We still think we are not going to lurch into an economic downturn," said IDC analyst Stephen Minton.

That type of optimism kept Cisco's cautious forecast from causing shares across the broad technology sector to tank, even as the company's own shares fell more than 10 percent.

The technology-laden Nasdaq Composite Index was flat as IBM and Microsoft Corp were little changed, while Hewlett-Packard Co rose 0.8 percent.   Continued...

The Cisco logo is displayed at the technology company's campus in San Jose, California in this February 3, 2010 file photograph. REUTERS/Robert Galbraith/Files