Despite Cisco's good health, government data fails to give a consistent picture on the direction the larger communications-equipment sector is heading. For the 12 months ended in March, new orders for nondefense-communications equipment fell 5.1% from a year earlier, though shipments grew by 12.5%. Inventories during that period shrank by 14%, a healthy sign. In March, factories producing communications wares worked at only half capacity, a level that's been consistent this past year. The 50% capacity-utilization rate among communications makers in March is well below the 73% rate posted during the recession of the early 1990s. From 1972 through 2003, communications vendors averaged a factory-utilization rate of 78%, peaking at 87% in the mid-1990s.
So it may not be time to break out the bubbly just yet, though Cisco's numbers do portend improving fortunes. Crowell, Weedon & Co. analyst Chris Sessing says Cisco "has such a lion's share of several markets; if they're doing well, then obviously it equates to better spending overall."
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