In the tech sector, there's an old saying, "When elephants dance, the mice get trampled." Lately, however, it seems the elephants may be doing more damage to each other-- and their stock prices -- than anything else.Two weeks ago, Ciscoannounced weak results and disappointed the market with an uninspiring forecast for the coming quarter.
Perhaps most notably, Cisco's gross margins compressed by 4.3 percentage points from the prior year, suggesting increased competitive pressure in its core networking business plus the impact of lower-margins from some of its acquisitions in set-top boxes (Scientific-Atlanta) and consumer electronics (Flip Video). The market responded by taking Cisco down 15%
Tonight, after the market close, Hewlett-Packard reported earnings that beat expectations but on weaker-than-expected sales. In addition, the company's guidance for the coming quarter and full year was clearly below expectations, and the stock promptly sold off by 10-12% in after-market trading.
HP's problems were largely related to soft sales of consumer PCs (as opposed to enterprise sales, which propelled Dell to better than expected results last week) and its services business. In servers, networking and storage, where it increasingly competes with Cisco, HP enjoyed a boost in both sales and operating profit.Despite optimistic forecasts for IT spending in 2011, the latest results are highly idiosyncratic, suggesting that a robust and widespread recovery in tech spending may remain elusive for awhile.
