Cisco (NASDAQ:CSCO) Pummeled After Gross Margin Miss

Shares of Cisco Systems (NASDAQ:CSCO) got hammered in after hours trading as the company missed on their gross margins for the quarter.

Costs related to research and development soared 19 percent in the quarter and sales and marketing expenses climbed 15 percent. That's in comparison to the 6 percent increase in sales.

The implication seems to be that Cisco is slashing prices and offering better terms to its customers, which works out to a longer period of time for customers to pay.

Most know demand is increasing, but it the question is whether or not Cisco can take advantage of that without sacrificing margins and earnings. At this time it appears they may be cutting prices to gain market share; at least that's how the market is interpreting the results.

Gross margins in the last quarter for Cisco dropped to 62.4 percent.

Cisco may have made themselves vulnerable to competitors in their older business because of moving into over 30 new businesses.

Mizuho Securities USA Inc. analyst Joanna Makris noted, “They’ve become the Procter & Gamble of networking. The stocks that have outperformed them have been the more focused, nimble companies.”

The company has the stated goal of growing revenue over the long term at a 12 percent to 17 percent rate.

Net income for the quarter dropped from $1.85 billion, or 32 cents a share last year in the same quarter, to $1.52 billion, or 27 cents a share.

Cisco closed Wednesday at $22.04, up $0.05, or 0.23 percent. In after hour trading, they dropped to $20.13, falling $1.91, or 8.67 percent.