Cisco (CSCO) Warns, But Stock Holds Up

Shares of Cisco Systems (Nasdaq: CSCO) are lower today, but have recovered from earlier lows and are not down as much as many expected considering the tech leader's warning about slowing sales. At 12:20PM ET, shares of Cisco were trading down 1.3%, after dropping as much as 6% in after-hours trading yesterday.

One of the main reasons Cisco is holding up well is likely related to its absolute pounding of the stock over the past year. Shares of Cisco are down 50% over the last year, 35% over the last six-months and 28% over the last three-months. This is called a "sell the rumor, buy the fact" reaction, meaning traders expected weak guidance from the company so they sold ahead of the results and are now scaling back into the stock.

While Cisco is relatively flat today, the warning from the company is contributing to a weakness in the broader market. The Dow is currently down 340 points or 3.7%, and the S&P is down 37 points or 3.9%.

After the close, Cisco reported Q1 EPS of $0.42, 3 cents better than the analyst estimate of $0.39. Revenue for the quarter was $10.3 billion, versus the consensus of $10.30 billion.

For Q2, Cisco said it sees revenues down 5%-10%, which is significantly worse than expected. The company sees Q2 gross margins of about 64%. Cisco said the slowdown has "truly gone global." CEO John Chambers said he has limited confidence in forecasts. Chambers said the overall credit quality in their portfolio is strong. Cisco doesn't now if Q1 was a "kitchen sink" quarter. Chamber said they are dealing in uncharted waters.

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