A stark warning from Cisco Systems yesterday threatens to freeze the first buds of investor optimism on the network equipment sector since a sharp downturn began six months ago, analysts said.
The company dominates the market for core routers and other equipment that drive data communication on the Internet. It said earnings for its third-quarter closing this month would fall far short of expectations.
That warning from the market leader extinguished a rally in other network equipment stocks that had posted their strongest gains as a group over the past week since they began turning lower last October.
Shares in Juniper Networks, Ciena Corp, Sycamore Networks, Redback Networks and JDS Uniphase Corp all tumbled in after-hours trade yesterday partly reversing last week's rallies.
Analysts said the Cisco warning puts the whole sector back on the defensive.
Cisco, which is famed for its ability to track customer demand, warned the slowdown in capital spending that began in the United States shows signs of spreading to Asia and Europe.
Cisco also projected sales for its fourth quarter ending in July could fall as much as 10 per cent from the already depressed levels of the current quarter.
The company tempered even that warning by saying all forecasts remain subject to more variability than normal.