August 07, 2009

Tech companies inflicting US stock market trouble

Cisco, Comcast, T-Mobile and a warning on chips

By Marc Ferranti

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Mixed news from the IT sector is being blamed for causing markets to take what most industry watchers are hoping is just a temporary dip.

The news includes earnings from Cisco Systems, worries about the telecom sector and a cloudy forecast for chips .

The US Labour Department released some positive data on the macro economy Thursday, saying initial jobless claims are slowing, declining 38,000 to 550,000 in the week ended 1 August, from 588,000 the week before.

Normally that would spark elation among investors, but continuing concerns about the tech sector seemed to have blunted excitement about the employment situation and broadly depressed markets Thursday.

Cisco reported late Wednesday that for the quarter ending July 25, revenue fell 18 percent to US$8.5 billion, while its net income dropped by 46 percent to $1.1 billion.

In a statement issued with the earnings release, Cisco CEO John Chambers pointed to some good news, however.

"We saw a number of positive signs this quarter in the economy and in our business, especially comparing our sequential quarter-over-quarter order trends," said Cisco CEO John Chambers in the statement.

"If we continue to see these positive order trends for the next one to two quarters, we believe there is a good chance we will look back and see that the tipping point occurred in our business in Q4," he said.

But on a conference call later, Chambers was more measured: "While this is an important trend, I would like to see this trend continue for several more quarters."

Cisco needs to expand its lines of business to be able to deliver the double-digit growth it has promised, and a new management approach to deal with change has some observers worried.

Meanwhile, there has been mixed news from telecom companies -- all potential customers for Cisco. On Thursday Comcast, the largest US cable operator, announced quarterly earnings of $967 million up from $632 million, a year earlier.

Even though overall profit looked good, slowing subscriber growth remains a concern. For example, Comcast added about 250,000 subscribers for digital cable TV, below 320,000 a year earlier.

Also, T-Mobile USA reported a drop in net income. Slowing customer growth was a factor in the slump. For the latest quarter, the company's net income declined to $425 million from $452 million in the year-ago quarter.

IDC had an upbeat report about second quarter sales of microprocessors -- one of the sectors that has caused the most concern in tech this year -- but the market survey was colored by some words of warning.

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