Cisco Spies Dip Ahead on International Downturn

Cisco CEO John Chambers
Cisco CEO John Chambers
Source: Reuters

Cisco Systems warned that its revenue could fall as much as 10 percent in the current quarter as the economic downturn spreads to Europe and Asia, and its shares fell about 6 percent.

The world’s largest maker of network equipment, often seen as a bellwether in the technology sector, said on Wednesday its revenue could fall 5 to 10 percent in the fiscal second-quarter from the year-ago period.

“We do believe that the challenges that initially affected the U.S. have spread to other countries around the world,” Cisco’s (NASDAQ: CSCO) CEO, John Chambers, said on a conference call.

The company reported a higher-than-expected quarterly profit as phone companies and businesses bought more routers and switches to cope with growing Internet traffic, despite a weaker global economy.

Cisco also reiterated its long-term revenue growth projection, initially boosting its stock by 1.3 percent in extended trading.

“It’s a solid performance in a very difficult period. Their geographic diversification positions them well,” said Barry Jaruzelski, a partner at management consultant Booz & Co.

Net profit for Cisco’s fiscal first quarter ended Oct. 24 was $2.2 billion, or 37 cents a share, compared with $2.2 billion, or 35 cents a share, in the year-ago quarter.

Excluding items, profit rose to 42 cents a share from 40 cents, it said. Analysts on average had expected 39 cents, according to Reuters Estimates.

Revenue rose 8 percent to $10.3 billion, which was in line with its own forecast and matched Wall Street expectations, suggesting that Cisco managed to keep a good handle on costs.

“Considering the slowdown a lot of tech companies saw in September and October, I think these numbers are better than feared because the sales growth of 8 percent is in line,” said Taunya Sell, analyst for Ragen Mackenzie, a division of Wells Fargo Investments.

“EPS is better than what we were looking for so they obviously held the line on expenses.”

Cisco CEO Chambers said the results showed it delivered solid growth “in what is clearly a very challenging global economy.”

The results came amid signs of a U.S. recession and a year after Chambers spooked the market by revealing that it was hit by “dramatic decreases” in orders from U.S. banks.

Cisco has been aiming for long-term revenue growth of 12 to 17 percent a year, but it has recently fallen below that pace. It reiterated the target on Wednesday, saying that assumed the global economy returned to normal growth rates.

Cisco has said that U.S. financial institutions account for only around 3 to 4 percent of its business. In September, it said events in the financial sector, including the collapse of Lehman Brothers, would be “manageable.”

But analysts have said banks’ reluctance to spend could dent corporate spending on network equipment — especially on big ticket items like Cisco’s core routers. Cisco’s CRS-1, for example, costs around $500,000 to $1 million each.

Cisco shares closed down 5.13 percent on Wednesday at $17.39 on NASDAQ. The company fell to $16.37 in extended trading.

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