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Cisco's Clues for Tech Sector Stocks: Analyst

Published: Thursday, 5 Nov 2009 | 10:39 AM ET

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By: JeeYeon Park
CNBC News Associate

Cisco posted a stronger-than-expected profit for its fiscal first quarter and said business was recovering as customers are buying more network equipment again, after cutting back for the past year. Simon Leopold, telecom equipment analyst at Morgan Keegan, shared his analysis of the company.

“Going back to the previous earnings call, [Cisco’s CEO John Chambers] gave us every hint that the recovery was taking place,” Leopold told CNBC.

“So his predictions have been good. He’s remaining somewhat conservative, warning us not to extrapolate this too far, but the signs that we’re looking at for the January quarter was more than a pleasant surprise to me.”

While enterprise spending in the U.S. is getting better, Leopold said Europe and the emerging markets are still weak.

Leopold said the government stimulus will be a "tailwind" for Cisco [CSCO Loading... () ] as the company is exposed on multiple stimulus fronts such as broadband, health care IT and smart grids.

However, Leopold said there are “plenty of reasons” why investors shouldn’t necessarily plough into the technology sector as a whole.

“I would say it’s a green light, but we’re not on a super-fast highway, so I wouldn’t do it too fast,” he said.

“It’s an encouraging sign and I’d like to keep upbeat, but there are some headwinds out there in the case for Cisco—they’re likely to face increased competition from the likes of IBM [IBM Loading... () ] and Hewlett-Packard [HPQ Loading... () ].”