A gloomy outlook from Cisco Systems Inc. is shaking some investors’ faith in the strength of the technology industry’s recovery.
Corporations have loosened their purse strings after slashing their budgets. Some governments have poured money into stimulus-fueled technology projects. Consumers are starting to snap up cell phones and gadgets again after backing off in the past few quarters.
But Cisco revealed severe slowdowns in spending by state and local governments in the U.S. and by governments in Japan and Europe. That has investors worried that other companies will show similar trends when they report their next earnings.
Cisco is a soothsayer of sorts for the technology world because it is the world’s No. 1 maker of computer networking equipment, and its quarterly results lag others’ by a month, meaning it includes an extra month of sales that most other companies haven’t reported yet.
Cisco’s stock got clobbered Thursday, and investors lopped off a sixth of Cisco’s market value, annihilating $23 billion in shareholder wealth. The sell-off drove the tech-laden Nasdaq down, too.
Shaw Wu, an analyst with Kaufman Bros., said Cisco’s results raise concerns about the level of information-technology spending in the months ahead.
“The economic environment is still very difficult,” he said. “Unemployment remains high. That hasn’t been solved.”
He added that “one quarter is too early to call a trend, but it definitely raises a red flag.”
Cisco’s results Wednesday provided buzzkill for an industry that has become accustomed to signs that a strong, broad recovery in technology spending is under way. The market’s reaction was so forceful because the trends Cisco has spotted contradict the sentiment expressed by other technology heavyweights.
Many other companies have raised their guidance recently. Intel Corp., EMC Corp., Xerox Corp. and IBM Corp. all offered reassuring signs about their respective industries and painted the picture of a slow but steady rise…