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Tickers in this Article: CSCO, MOT, JNPR, FFIV, ARUN, HPQ
Not all bellwethers are created equal. True, Cisco (Nasdaq:CSCO) is an incredibly significant player in networking equipment and software, but the product and customer overlaps are never perfect across any sector. What that means for investors is that Cisco's near-term business issues may not be a sign of doom for the sector, and nimble investors may want to keep an eye out for stocks that get cut down unnecessarily.

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Cisco's Bad News
Cisco reported decent fiscal first quarter results (sales up more than 19%; operating income up 14%) but guidance was very problematic. It looks like Cisco is seeing low-to-mid single-digit growth in its second quarter (the calendar fourth quarter) and may post less than double-digit growth for the full fiscal year. Perhaps not too surprising, the biggest sources of weakness for Cisco are public (government) customers and European customers - two market segments where debt burdens and weak spending budgets are major issues. In fact, state governments' orders plunged 48% on a quarter-over-quarter basis.

Tough Markets or Tougher Competitors?
Clearly, the major debate following Cisco's surprise will be the extent to which the company's problems are market issues beyond its control and how much is due to competitive share gains from rivals. For instance, when Motorola (NYSE:MOT) gave guidance recently, it did not talk about any particularly dire outlook in the state government market (where it sells a lot of two-way radios). Likewise, Hewlett-Packard (NYSE:HPQ) and Juniper (Nasdaq:JNPR) had pretty encouraging guidance and both sell product into government customers as well (though perhaps not to the same extent as Cisco).

Instead, it looks like HP and Juniper have gained share in the switching market. Again, this will be a point of controversy; it could be a one-quarter effect, it could be an apples-to-oranges comparison, and so on. But the fact remains that the estimates for HP and Juniper have been going higher.

Looking to the Growth Tier
Taking Cisco at its word, a bad government spending environment does not automatically mean bad news for others in this space. Fast-growing F5 Networks (Nasdaq:FFIV) gets only a small percentage of its revenue from non-U.S. Federal government customers. Likewise, Aruba Networks (Nasdaq:ARUN) sells a fair bit to the Federal government (where spending is not so weak, according to Cisco) but not nearly so much to state and European governments.

What's more, each of these companies is growing much faster than Cisco and taking share in their respective markets. So even if Cisco is completely right and it's simply a slowdown in non-Federal government spending that is hurting results, these other companies (and their investors) have little to fear.

Value-Hunters Need Not Apply
None of this should be read to suggest that there is an abundance of cheap stocks in the networking sector right now. Even if F5 or Aruba take a little hit from Cisco's news, they are not going to be "cheap" stocks by any stretch. In fact, in what may be an ironic twist, Cisco is likely to end the day as the only stock in the space that actually looks undervalued. But with so much of investor enthusiasm in tech stocks predicated on strong near-term earnings momentum, value-oriented buyers of Cisco may be in for a wait.

The Bottom Line
All in all, it looks like Cisco may have a little bout of growth deficiency syndrome to battle for a few quarters, but the industry as a whole is quite hale and hearty. (Buying value stocks that are moving higher helps investors steer clear of value traps. For further reading, refer to Value Investing + Relative Strength = Higher Returns.)

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