Tech Giants Reach Maturity

Add two more names to the list of once high-flying tech stocks that have reached maturity: Cisco and Dell , which spent their quarterly conference calls this week answering questions about why their growth rates have slowed.

After years of high growth rates, investors this week were confronted with the possibility that the two tech giants might grow at a more pedestrian rate of 10% or so going forward. That’s nothing to sneeze at, but for investors of two of the highest flyers of the 1990s, slower growth rates might take some getting used to.

Cisco was hit hard in the tech downturn of 2000-2003, but rebounded to post solid 16% sales growth last year. More surprising is the sudden slowdown at Dell, which has wowed Wall Street for more than a decade with its ability to steal market share from rivals. Even during the downturn, Dell’s growth barely suffered; the company’s five-year annual average sales growth is 14.3%, according to Reuters Research, compared to 5.6% for Cisco.

Dell officials dismissed competitive concerns during the company’s conference call late Thursday, but it appears the company may finally be running out of competitive advantages. Dell also appears to be facing operational challenges for the first time in memory.

The one positive for investors is that at a price-to-earnings ratio of around 15, both companies’ shares have largely priced in the slower growth rates at this point. Anything better than the reduced growth estimates could result in healthy gains for investors.

The two might also want to consider something other cash-rich, slower-growth tech giants like Microsoft and Intel have done: Consider paying a dividend.

Stocks added to recent gains Friday as oil prices eased.

The Nasdaq rose 6 to 2202, the S&P 500 added 4 to 1234, and the Dow gained 46 to 10,686. Volume declined to 1.77 billion shares on the NYSE, and 1.46 billion on the Nasdaq. Advancers led 18-13 on the NYSE, and 16-13 on the Nasdaq. Upside volume was 68% on the NYSE, and 65% on the Nasdaq. New highs-new lows were 136-113 on the NYSE, and 170-52 on the Nasdaq.

Net2Phone jumped 28% on a buyout offer from IDT .

Serena slipped on plans to be acquired by Silver Lake Partners.

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