After its share price yesterday hit the lowest level in three years, Datatec has reassured investors that Cisco`s poor financial results will not impact its revenue or earnings for this financial year.
Heavy international exposure to Cisco, which missed analysts` second quarter forecasts, sparked yesterday`s freefall of the Datatec share price, which hit 12-month lows and, at R29.05 on intra day trading, reached its lowest price in three years.
Cisco reported a 48% growth in second quarter profits, but the news fell short of analysts` expectations, and the Nasdaq-listed networking and infrastructure company also saw its share price take a heavy knock, dragging the whole of Nasdaq with it.
Westcon, Datatec`s US subsidiary, is heavily exposed to Cisco, with more than 60% of its revenue coming from Cisco technology.
A Johannesburg analyst says "this is another case of Cisco sneezing and the channel catching cold".
He believes the Nasdaq listing of Westcon could suffer the most from the Cisco results. Westcon is planning a road show before its initial public offering and speculation abounds that negative perception may delay plans.
Datatec is not the only blue-chip technology stock that felt the brunt of Cisco`s results. JSE benchmark Dimension Data also felt the pinch in volatile trade yesterday, falling a little over 3% to R53.50.
DiData also has a heavy exposure to Cisco, and its share price generally tracks that of the US giant.
London Stock Exchange trading in DiData may also come under additional pressure after ABN Amro put out a "sell" call on the share, advising it was over-valued.
Perception among local analysts is that markets can overreact to results news, with one analyst noting that his international counterparts can be too aggressive on forecasting.
"A 48% rise in profits is still above the industry average, and we can`t expect the same kind of brilliance from companies quarter after quarter. For the moment, I`d stay in blue-chip stocks and ride it out, because the sector is still in for some stormy weather."
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