Here's the Infrastructure Company for Everything

Cisco (CSCO) is an accurate proxy for global enterprise spending around the world.

This foundational company offers the base for software-reliant companies to flourish and tuning into their quarterly earnings report is a front-row affair.

Even though the firm beat on the bottom line, 2020 prospects dimmed substantially, enough to question whether the underpinnings of global growth remain in-tact.

Topline revenue beat as well with the company earning $13.16 billion in revenue eclipsing the estimated $13.09 billion.

But analysts and investors were mainly there to scrutinize the commentary on future earnings considering that 2020 is unfolding into the most uncertain year in recent history coincides with a potentially fractious U.S. presidential election.

The onus was on CEO Chuck Robbins to provide some comfort and that comfort was visibly lacking in his call.

The disappointment started with the commentary regarding annualized revenue growth.

Cisco expects annual revenue to slide between 3-5% next year.

Earlier this year, Robbins had revealed that the slowdown had been confined to smaller parts of the market but now it is suddenly expanding into almost all corners of the world.

The delay in IT spend has hit conversion rates which were lower than normal and large deals got done but in a smaller way.

Businesses have consciously chosen to elongate their refresh cycle and are defiantly sticking with the current IT technology to subdue costs.

Usually, new IT infrastructure begets more spending on newer software but that is all grinding down to a halt for the foreseeable future.

Cisco has a massive install base of users to grab data points from, and this should put some cold water on a narrowing tech rally.

Safe haven names have received the lion’s share of the tech rally momentum as of late.

The most suitable adjective to describe the current IT slowdown is “broad-based” and countries such as China are showing weak IT spend too.

China isn’t a huge customer for Cisco, and emerging markets have been exhibiting more weakness than the larger economies.

Cisco’s poor guidance dovetails nicely with my recent theme of a prolonged tech earnings recession laced with bad guidance.

The lamentable commentary about 2020 will persist in tech. 

I do view the more than 7% dive in Cisco’s shares today as a solid entry point into one of the premier tech infrastructure stocks in the world, but will let the market digest the results first.

Even though corporate America is heading toward a new valley in an earnings recession that could last the entire calendar year, Cisco will muscle its way through as higher-tech spend will at some point reshape the earnings outlook.

But don’t expect that for the next quarter or two.

Investors should expect more softness in tech shares and rerouting of capital into top-grade tech shares like Microsoft (MSFT).