Will Cisco’s Selloff Drag These Tech Stocks Lower Too?

Despite rebounding throughout the day, stocks declined once again on Wednesday following more eurozone concerns. The Dow Jones Industrial Average (NYSEARCA:DIA) posted its sixth consecutive decline, while the S&P 500 (NYSEARCA:SPY) finished at its lowest level since early March. Several technology names managed to finish the day in the green, but a sobering earnings call from Cisco hangs over the tech sector.

Shares of AOL Inc. (NYSE:AOL) jumped 3.48 percent on Wednesday. The web services company received a boost from better-than-expected first-quarter earnings. Net income surged to $21.1 million (22 cents per share), compared to $4.7 million (4 cents per share) a year earlier. Revenues declined 4 percent, but the company has beaten income estimates the last two quarters. In the fourth quarter of the last fiscal year, it topped expectations with net income of 35 cents versus a mean estimate of net income of 17 cents per share.

“AOL is a much stronger company today than a year ago and began 2012 by growing advertising revenue, lowering expenses and improving Adjusted OIBDA trends,” said Tim Armstrong, Chairman and CEO. “In 2012 and beyond we are simultaneously focused on the continued successful execution of our strategy and on creating and unlocking value for our shareholders.” Investors appear to believe that AOL is stronger this year too. Shares have gained 75 percent year-to-date.

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One of the strongest performers on Wednesday was Demand Media Inc. (NYSE:DMD). The content and social media company narrowed its first-quarter loss to $1.8 million, compared to a $5.6 million loss a year earlier. Adjusted net income came in at 7 cents per share, well above the mean estimate of 1 cent. “Driven by continued growth across our businesses, our first quarter revenue exceeded our seasonally strong Q4 2011 results,” said Richard Rosenblatt, Chairman and CEO of Demand Media. “We are pleased with our first quarter results and remain focused on investing in our long-term growth initiatives, including enhancing the quality of our Owned & Operated properties, expanding our content distribution channels and partnerships, and pursuing new generic Top Level Domain opportunities.” Shares of the California based company closed at $8.57, their highest level all year.

Older tech names such as Microsoft Corp. (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) posted modest gains in the face of the market sell-off. Rumors continue to swirl that Microsoft may be in talks with Facebook to create a smartphone. Meanwhile, if reports of orders with two Apple equipment suppliers are true, the tech giant has lined up a blockbuster second half of the year for its fans. A report in the Taiwanese technology blog DigiTimes reports says orders suggest a 7-inch mini iPad will be released in August, a new iPhone will come in September and the next-generation iPad will follow in the fourth quarter.

Looking ahead, Europe is likely to dominate the rest of the week, even in the tech sector. After the closing bell on Wednesday, Cisco Systems Inc. (NASDAQ:CSCO) shares dropped nearly 9 percent after raising red flags on its earnings conference call. John Chambers, Cisco’s Chairman and CEO, said, “We have seen the issues of southern Europe expand. Central and Northern Europe have their own set of challenges.” Cisco also gave a dismal outlook and explained that the “revenue guidance is aligned with the product order growth trends we saw in Q3, and the feedback from our customers on conservative IT spend, as well as the macroeconomic climate especially in Europe.”

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