Even as Cisco warned that technology spending by companies could be hurt by concerns about Europe, analysts say there is room for optimism. Pointing to last year's experience, some say tech spending may rebound in the second half, potentially boosting equipment makers shares again.

Morgan Stanley is advising its clients to start making bets in anticipation of a pickup in tech spending. Morgan Stanley analyst Ehud Gelblum recommends F5 Networks Inc and Qualcomm Inc, in addition to Cisco.

"In our sector upgrade last month, we called for this round of earnings to mark the last round of negative earnings revisions before an improvement in 2H," Gelblum said.

Research firm IDC forecast global spending on technology to grow 6.5 percent this year, after climbing 5 percent in 2011.

"We still think we are not going to lurch into an economic downturn," said IDC analyst Stephen Minton.

That type of optimism kept Cisco's cautious forecast from causing shares across the broad technology sector to tank, even as the company's own shares fell more than 10 percent.

The technology-laden Nasdaq Composite Index was flat as IBM and Microsoft Corp were little changed, while Hewlett-Packard Co rose 0.8 percent.

Cisco's smaller rivals were harder hit, with Juniper Networks and Riverbed Technology dropping 4.9 percent and 5.7 percent, respectively.

Big software makers and services company sign long-term contracts that generate more predictable revenue streams than those of equipment companies like Cisco - although Cisco has been at pains to drive software revenue models too.

Economists expect the Eurozone recession to last through the third quarter, before modest growth returns, a Reuters survey showed, but the median outlook masks a wide spread of opinion, with bears forecasting contraction out to late 2013.

IDC, however, forecast some growth in IT spending in Western Europe, 0.9 percent for the year, with the United States showing growth of 2 percent.

To be sure, nobody is expecting 2012 to be a banner year for the technology sector, even in the United States, which has yet to suffer from the European flu.

"Growth in the U.S. is not great but it is good enough," Minton said.

Paul Otellini, chief executive of No. 1 chipmaker Intel Corp, also struck a cautious tone on Thursday while answering questions at the company's annual investor day.

"This quarter is playing out as we thought. The enterprise is good, it's not fantastic," Otellini said.

Intel shares were little changed at $27.24.

DEER FROZEN IN HEADLIGHTS

Shares of EMC Corp, the world's biggest maker of corporate storage gear, were among the day's worst performers among big technology companies.

Like Cisco, EMC sells expensive hardware.

In tough economic times, businesses and governments typically react by putting off equipment upgrades, and try to make what they have last longer before looking for deeper cuts.

"Enterprises in North America have simply become frozen like deer in the headlights with respect to their networking spend," Gelblum said in a note to clients. "All of Europe - from governments to enterprises to services providers - have cut back dramatically in their network deployment activity."

Traditionally, equipment makers get hit first as companies try to make infrastructure last longer. Computer makers HP and Dell Inc have tried to offset that impact because they also sell software and services.

IBM, for example, has focused on software and services, going so far to sell off its PC business, buy consultancy PriceWaterhouseCooper and acquire a string of software makers.

For now, Cisco is valued at 9.4 times estimated 12-month forward earnings while Dell and HP are traded at 7.3 and 5.5 times, respectively, according to StarMine, which gives more weight to timelier forecasts and those from the historically most accurate analysts.

Barclay analyst Jeff Kvaal added that despite Cisco's "downbeat tone on IT spending and Europe," he did not see signs that "support a pronounced market down tick."

Both Kvaal and Gelblum agree that even if the economy does worsen, Cisco may prove to be a safe haven.

"We believe the large, integrated, global providers such as Cisco which provide more nuts-and-bolts networking equipment the best investments in our sector," Gelblum said.

(Reporting by Nicola Leske; Editing by Gary Hill)

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