Cisco: Litmus test for larger economy

Because Cisco Systems Inc. (NASDAQ: CSCO) is one of the largest technology firms in the world and its huge number of businesses touch sectors from enterprise switching to home entertainment, it is as close to a litmus test for the tech economy as almost any firm Wall Street can find.

Based on Cisco earnings and forecasts, the tech world may be pulled as deeply into the recession as most other industries are.

The company's net income for its quarter ending October 25 was $2.2 billion compared to $2.21 billion in the same period a year ago. Revenue rose 9% to $10.3 billion. But, Cisco said revenue in the current quarter could fall 5% to 10% compared with last year. For a firm that has had extraordinary growth for years, the admission was a bit shocking.

Problems stretched well beyond U.S. borders. According to The Wall Street Journal, "The slump has also affected one of Cisco's chief growth generators -- sales to companies in emerging countries."

The Cisco numbers point to an end of the rapid spending by internet and telecom companies to upgrade their infrastructure. The frightening aspect of that is that the growth of the internet, which has enhanced communications and access to information, may be slowing sharply. That means that enterprise telecom and cable firms have decided that they cannot afford the capex.

But worse, it may be that consumers across the world are turning away from increased use of the internet as a means of communication with the outside world and the transactions that have driven e-commerce growth for almost a decade.

Douglas A. McIntyre is an editor at 247wallst.com.