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Cisco Stock under Pressure over Trade War Woes

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Aug. 27 2019, Updated 8:06 a.m. ET

Cisco (CSCO) stock has been under immense pressure recently. Since July 23, the stock has fallen 15%. While the plunge has come as broader stock markets have turned bearish amid economic slowdown concerns, the company’s disappointing outlook has also played a role.

Cisco stock fell more than 8% on August 15, after the company triggered concerns about its revenue growth. In fiscal 2020’s first quarter, the company expects its revenue to be flat or increase by 2%, to reach about $12.9 billion. In contrast, the company reported revenue of $13.4 billion in fiscal 2019’s fourth quarter.

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The US-China trade war’s effects on Cisco and peers

The escalating US-China trade war appears to be derailing Cisco’s transformation into a software company. According to The Wall Street Journal, the trade war has hurt corporate spending significantly, as trade tariffs could trigger a spike in prices for goods.

Cisco, which generates 3% of its revenue from China, has started to experience a decline in Chinese business. This decline may be pressuring its stock.

Cisco isn’t the only hardware technology company feeling the effects of the escalating trade war. Fears of networking spending slowing down have impacted the market. Hewlett Packard Enterprise and Arista Networks stocks have fallen 16% and 20%, respectively, since July. Meanwhile, Ubiquiti has shed more than 15% of its market value.

Analysts’ expectations for Cisco stock

Analysts have become pessimistic about Cisco stock’s long-term prospects. Nomura analyst Jeffrey Kvaal has warned that Cisco stock could come under pressure amid growing concerns about reduced IT spending on networking equipment. The analyst has given the stock a “neutral” rating.

Needham analyst Alex Henderson also has doubts on Cisco stock. He thinks 5G (fifth-generation) technology will do little to limit the damage caused by the shrinking spending. The analyst recommends “hold” for the stock based on his concerns over growth expectations and buyback moderation.

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