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Contract manufacturer shares dip on Cisco guidance

Thu, 08/12/2010 - 9:35am
The Associated Press

A disappointing sales forecast from Cisco Systems weighed on shares of companies that make parts for the world's largest provider of networking equipment.

With more than $40 billion in revenue from customers worldwide, Cisco is a bellwether for the broader technology industry.

When Cisco hurts, so does its suppliers.

Shares of contract manufacturers Jabil Circuit Inc., Flextronics International Ltd. and Celestica Inc. tumbled in afternoon trading Thursday.

Cisco's guidance "suggests that ... investor expectations have gotten ahead of reality; and ... the pace of the recovery is moderating," wrote RBC analyst Amit Daryanani in a research note Thursday.

Daryanani wrote that the higher purchase commitments Cisco noted and higher inventory could come back to hurt the contract manufacturers even more deeply if the economy slows again.

"It is our impression that demand and supply appear to be in equilibrium — at best. This implies that outsized supply chain revenue growth could moderate going forward," the analyst wrote.

St. Petersburg, Fla.-based Jabil's stock sank 63 cents, or 5.1 percent, to $11.68 in afternoon trading. Shares of Singapore-based Flextronics declined 24 cents, or 4.1 percent, to $5.47. Celestica, based in Toronto, saw its stock fall 17 cents, or 2 percent, to $8.11.

Shares of Cisco Systems Inc., based in San Jose, Calif., outpaced them all Thursday, falling $2.24, or 9.4 percent, to $21.49.

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