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Ask Not for Whom the Bell Tolls

The stock market needed a boost and this week, a universal sigh of relief accompanied Cisco’s “better than expected results”, it’s first year-on-year quarterly revenue rise for over twelvemonths and since it announced massive workforce cuts and rationalised it’s free soft drinks policy in a bid to cut costs.

Cisco is, of course a ‘Bellwether’ stock and I comment on it quite frequently on CNBC. However, before we start getting really excited and talk prematurely about ‘recovery’ in the tech-sector, I’ll grab my little green notebook and flick back through the pages to a few weeks ago to the programme that followed Microsoft’s earnings results. Then, I said that:

“Sun is flat, Microsoft is disappointing, IBM is wobbling and Compaq barely made it”.

On top of this, SAP had a 40% drop in income for the quarter and we won’t even talk about the telecoms stocks. It wouldn’t be kind.

Cisco could afford to be a little buoyant at its performance. It had, after all, avoided crucifixion and single-handedly took the Wall Street back over the Dow Jones 10,000 mark. In the words of Cisco’s CEO, John Chambers, “: "Last year was a classic downturn. We took the critical steps to position ourselves for the upturn, and we are beginning to see the very positive results."

The market is however looking for hope, any hope and now it will be looking for evidence that Cisco’s recovery is rather more than a blip of optimism in a rather desolate landscape. Cisco and others like it, such as Foundry Networks represent the foundation of the DotCom effect and the vision of a broadband-driven universe, which has yet to arrive. Unfortunately though, my innate cynicism and the only too visible tech-stock bloodbath that I see around me, leads me to think that it’s far too early for people to talk of any real recovery. We need to see at least three companies come out with strong results before we start breaking out the champagne. Dell is one, Cisco of course is another and a third might be Microsoft or IBM. Judging this highly volatile market on a single encouraging performance is far too risky and most certainly premature, in my mind.

I can’t see a single company that I know of in this industry, which isn’t suffering. There is business to be had, particularly in the public sector but much of the time, IT companies’ largest customers are other IT companies and so the recession we are trapped in goes around in an unhappy circle, one which has created a condition where we can’t find two or three IT companies able to offer the market enough good news simultaneously, to jumpstart confidence and revive the march of progress.

There’s light at the end of the tunnel somewhere for the IT business but for many IT companies, it’s just as likely to be a train coming from the other direction.


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