Technology Shares Surge on Intel Acquisition and Cisco Cost-Cutting Efforts

Strategic Insights -

Technology shares have experienced significant gains in late-session trading, driven by Intel's announcement of a chip-sector acquisition and Cisco's plans to cut annual expenses by $1 billion. The Dow Jones U.S. Technology Index has seen a 2.74% increase, with Intel shares rising 3.5% to $23.06 after the company entered into a definitive agreement to acquire Fulcrum Microsystems. Cisco shares are also higher, up 1.36% to $15.65, following the company's decision to cut 15% of its staff and sell a set-top box factory in Juarez, Mexico. Analysts at Gleacher and Co believe the cuts could yield $1.7 billion in savings, beating Cisco's $1 billion target and adding 25 cents in per-share earnings to the bottom line in 2012.

Key Takeaways:

  • Intel's acquisition of Fulcrum Microsystems is expected to close in the third quarter of 2011, pending shareholder approval, regulatory approval, and customary closing conditions.
  • Cisco plans to cut 15% of its staff and sell a set-top box factory in Juarez, Mexico to Taiwan's Hon Hai Precision Industry, resulting in estimated pre-tax restructuring charges of up to $1.3 billion.
  • The job cuts at Cisco will incur $750 million in charges in the fourth quarter of its fiscal year 2011, with $500 million allocated for the early retirement program.
  • Analysts at Gleacher and Co estimate the cost-cutting efforts could yield $1.7 billion in savings, exceeding Cisco's $1 billion target and adding 25 cents in per-share earnings to the bottom line in 2012.
  • The Dow Jones U.S. Technology Index has seen a 2.74% increase, with the top technology stocks experiencing the following gains: MSFT: +3.8%, AAPL: +0.6%, IBM: +5.3%, CSCO: +1.5%, GOOG: +1.5%.

Statistics:

  • The Dow Jones U.S. Technology Index has risen 2.74% to 694.43.
  • Intel shares are up 3.5% to $23.06 after the acquisition announcement.
  • Cisco shares are up 1.36% to $15.65 following the company's cost-cutting measures.
  • The estimated pre-tax restructuring charges from Cisco's job cuts are up to $1.3 billion.
  • Analysts at Gleacher and Co estimate the cost-cutting efforts could yield $1.7 billion in savings, exceeding Cisco's $1 billion target.
  • The planned job cuts at Cisco will incur $750 million in charges in the fourth quarter of its fiscal year 2011.

Sources:

  • MidnightTrader via COMTEX, July 19, 2011
  • Reuters
  • Gleacher and Co
  • Comtex News Network, Inc.
  • www.mysmartrend.com