A Weird Moment for Tech

 | Aug 09, 2012 | 7:01 AM EDT  | Comments
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Things are so bad in tech land that we have to buy? Look, how else can you try to figure out the big push for Cisco (CSCO) this morning by both Goldman Sachs and Piper Jaffray? Each firm is proclaiming proprietary knowledge that this time is different, and that business is actually coming on strong. How else can you rationalize that twin Cisco call? This came even as Rick Hamada, the terrific chief executive officer of Avnet (AVT), said business fell off a cliff for the big-tech supermarket in the last two weeks of June and the month of July.

We are at a very weird moment right now in tech. Avnet, with its hundreds of thousands of customers, big and small, has a fabulous handle on tech demand and the company. Demand had been cruising in April and May and the first part of June -- and then got crushed in the last two weeks of June. July's not been better -- no worse, but not better. That caused Avnet to miss the quarter and tell a very downbeat near-term story.

Cisco is in a different part of the tech food chain than the part Avnet called out, as it deals in mostly servers and microprocessors. However, here is enough overlap to call into question any Cisco upgrade. But two upgrades? You have to believe they've got something.

So what are the possibilities of a legitimate turn? Let's tick them down.

First, we know telecoms around the world have cut back, and refrained from spending their budgets, to the point at which we started to think maybe they'd never come back. But that can only last for so long. Maybe we are at the inflection point.

Second, now that Europe's stabilizing, perhaps the same orders that were pushed back so severely in the last two weeks of June are now coming back in the first two weeks of August. Is that possible?

Third, has Cisco has annihilated what is left of the competition -- Juniper (JNPR) and Hewlett-Packard (HPQ) and low-end Chinese companies -- and is flexing its muscles?

We know Cisco has made severe cutbacks. We know it is beginning to execute well. It is entirely possible that the world's economies are bottoming.

So I can see why this call will work.

But I also know that this whole "change on a dime" thing is bothersome to me, and that's how I would regard a good quarter from Cisco. It's disappointed so many times.

I guess, in the end, I can't reconcile Avnet and Cisco. In fact, I can't reconcile Avnet and the tech move we are seeing. It's possible that you can say, as Hamada did, that he expects normal seasonal strength to kick in for tech. That would tell you to buy tech now, regardless of the near-term fundamentals.

That thought, above all others, seems to be what's currently driving stocks -- including, as of today, Cisco.

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