Cisco brings hope to battered IT industry

 

Cisco's resilient third quarter performance brought some hope to the battered technology sector, giving a boost to European tech stocks, but many industry players believe it is too early too call a recovery.

Investors bought into Cisco's cautiously optimistic outlook of a slight improvement in sales for the next quarter, although analysts noted this was merely a sign that there was light at the end of the tunnel.

Cisco, which is considered a bellwether firm for demand in the IT services sector, said corporations are still waiting on the sidelines until profits and revenues pick up before they make further investments in technology.

Cisco's remarks on Tuesday fell into a business climate that is regarded as very weak.

Hewlett-Packard's president Mr Michael Capellas told a Merrill Lynch conference last week that demand for its technology and services is still bumping along the bottom, a phrase coined by Intel Chief Executive Craig Barrett as early as June last year.

This is consistent with market research from Gartner Dataquest and IDC agreeing that 2002 is a "gap year" in which IT budgets at major corporations will remain flat well into 2003.

"It's still too early to call an earnings recovery... The downtrend remains in place," said Mr Richard Champion, a European fund manager at Pavilion Asset Management in London.

Comments from Cisco CEO Mr John Chambers were interpreted positively by the markets. The absence of bad news was interpreted as a positive statement on the prospects for the global IT market.

In Europe, the Dow Jones European technology stock index rose 5.5 per cent to 312.67 points, recovering almost all of its losses since last week as Cisco helped to spark a rally across a broad range of stocks.

The gains were led by Swedish telecoms equipment maker Ericsson, up almost 6.8 per cent, while Finnish mobile phone maker Nokia and German chip maker Infineon both added more than five percent.