Shares of Cisco Systems fell as much as 5.7% to a more than one-year low on Thursday after the network equipment maker warned of a rapid slowdown in US and European orders and gave a disappointing outlook.
The news dragged down shares of other US telecom equipment makers, including Juniper Networks and Ciena.
JPMorgan analyst Ehud Gelblum said in a research report that he was downgrading Cisco shares to "neutral" from "overweight", because "growth rates appear headed south quite rapidly for much of the foreseeable future.
"Even more telling is the fact that management decided to curb guidance after just one month of slow order growth in January due to weakness in the US and Europe, indicating this slowdown could be just the tip of the iceberg," Gelblum said.
Cisco, the largest maker of the routers and switches that direct traffic on data networks, forecast fiscal third-quarter revenue to rise 10%, short of the 15% growth expected by Wall Street, according to Reuters Estimates.
That would also be a slowdown from Cisco's 16.5% revenue growth in the second quarter, which ended on 26 January.
Cisco also said it expected revenue growth in fiscal 2008 to be at the low end of the projected 13% to 16% range.
"With numbers moving lower, we are reducing our price target on the shares of Cisco from $33 to $23," Bank of America analyst Tim Long said in a research note, adding that he was concerned about weakness in Europe and pressure on margins from continued investments.
"We believe Cisco may struggle to achieve the low end of its long-term growth objectives if macro conditions worsen further," he said, referring to Cisco's goal to maintain long-term revenue growth of 12% to 17%.
Shares of Cisco fell as much as $1.31 to $21.77 on the Nasdaq, their lowest level since September 2006. Later in the morning, they traded at $22.60, down 2.1%.
"Cisco's outlook suggests a much greater degree of uncertainty than the market expected," said Goldman Sachs analyst Brantley Thompson in a report, cutting the price target on the stock to $28 from $32. "As a result, we believe it will take at least another quarter or two of solid results before the stock can regain sustained positive momentum."
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