Networking Stocks Rise And Fall On Chambers' Remarks

Chambers, who one analysts called the "industry's own Alan Greenspan," gave networking stocks a lift when he spoke at two technology conferences in Arizona on Tuesday.

He said the networking giant's December orders met expectations and that customer budgets, while conservative, had the flexibility to go up. The good news seemed to outweigh the fact U.S. markets are still struggling and even Cisco's own view it was hard to make forecasts beyond a few months.

After initially rising 4 percent, Cisco's shares closed off 10 cents at $20.85 in trading on the Nasdaq. Since the beginning of last year, the stock has outperformed its peers in the American Stock Exchange Networking Index by about 16 percent.

"John Chambers, who is our industry's own Alan Greenspan, ... had good-news-bad-news, but it was more positive than negative is the read investors have taken," Gerard Klauer Mattison and analyst Michael Cristinziano said.

The networking index closed off 1 percent after rising more than 2 percent earlier and individual stocks that closed up included Redback Networks , Sonus Networks , Riverstone Networks and Tellium

Juniper Networks and Enterasys Networks closed lower after a short-lived boost.

The fact that December orders at Cisco, the largest maker of gear that powers the Internet, met expectations was a relief after December 2000 when they "fell off a cliff," C.E. Unterberg, Towbin analyst Martin Pyykkonen said.

He said the results gave investors heart that demand may be rebounding. But he warned that San Jose, California-based Cisco is benefiting from its own efforts and investors cannot necessarily extrapolate that other industry players will see similar gains.

Lehman Brothers analyst Tim Luke said recent comments from Extreme Networks , Riverstone and Enterasys suggest better outlooks.

Also, Tuesday, Tellium Chairman and CEO Harry Carr reiterated the Oceanport, New Jersey company's fourth-quarter and 2002 revenue forecasts.

"Most of the market is beginning to believe that Cisco's numbers are achievable for the year and might even be beatable, actually," said David Brady, portfolio manager of the Liberty- Stein Roe Young Investor Fund.

"If the environment were to accelerate, there would be some spillover effect and some of the secondary and tertiary players would be benefit as well," he added.

Redback's shares were especially active, rising partly on the Cisco comments, as well as Wall Street's belief the company appears on track with its fourth-quarter results.

Its stock traded up almost 16 percent at one point and closed up 43 cents, or 8 percent, at $5.78 in Nasdaq trading.

Redback shares already had been rising briskly from a recent low of $3.44 on Dec. 28, 2001, thanks in part to Morgan Stanley analysts, who last week said the San Jose, California- based router maker's fourth-quarter revenues appear on track and its first-quarter outlook is "modestly positive."

They see Redback posting fourth-quarter revenues of $39 million to $40 million, compared with the $38.7 million that analysts surveyed by Thomson Financial/First Call expect.

Redback reports fourth-quarter results Jan. 16. The company has said it sees its revenues flat to slightly up from the third quarter -- a major improvement after three straight quarters of falling revenues, according to analysts.

"Their sales had been in a free fall, unable to find a bottom," said Kaufman Bros. analyst Clifton Gray.

Analysts also expect Redback to discuss how a new router is faring in field tests and how many are selling.

"For the December quarter, we expect they will report customers for their new smart-edge router," said Hasan Imam, a Thomas Weisel Partners analyst. "Investors have been tracking the development of this product to see how Redback executes."

"The edge-router market is pretty big," Imam said. "If Redback can gain some market share there -- with 800-pound gorillas like Cisco and Juniper in it -- it would be significant for them."

But Gray said he does not expect the new router to be deployed rapidly.

(Additional reporting by Jim Christie in San Francisco)

REUTERS

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