Morning Note: Cashing in on Cisco's Failure

Catherine Holahan of CNBC's "Fast Money"
Thursday, 10 Feb 2011 | 10:27 AM ET

How to cash in on Cisco? That was the question Fast Money Trader Brian Kelly was looking to answer the day after Cisco’s disappointing earnings report.

Cisco shares dropped 10 percent in after-hours trading Wednesday as its CEO John Chambers confessed the company’s core products are seeing pricing pressure. Cisco’s margins missed estimates and Chambers guided to the mid-to-lower end of its 9 percent to 12 percent revenue growth range.

Cisco’s third straight post-earnings sell-off had many traders fleeing the stock Thursday morning. But Kanundrum Capital’s Kelly was combing over Cisco’s earnings report for trade ideas. The areas where Cisco saw growth could prove even bigger opportunities for competitors, said Kelly.

The data center virtualization space caught Kelly’s eye. Data center virtualization enables corporations to run software on data center servers and feed them to all the computers on the company’s network — negating a need for software to be individually installed and maintained on each computer box. Cisco said that its Unified Computing System grew 59 percent year over year.

On Cisco’s earnings call, Chambers touted the UCS area as one segment of the business going according to plan. “The data center evolution is playing out as we anticipated,” Cisco CEO John Chambers.

Kelly was buying Cisco virtualization competitors such as Qlogic and Emulex. “This is the area that is really growing in Cisco,” said Kelly.

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