Cisco raises red flag
John Chambers, Cisco Chariman and CEO, says company may face economic challenges beyond its control.
Cisco is having trouble closing major sales with corporate customers who are becoming more concerned about the state of the economy, particularly in Europe.
The world's largest maker of computer-networking equipment raised the red flag on Wednesday in the US, lowering its global revenue expectations for the currently quarter.
That raised fears among analysts that technology companies catering to businesses and government agencies - the enterprise market - are heading for a slump.
Cisco CEO John Chambers said he hoped things would pick up in the second half of the year. But when pressed by an analyst during a conference call, Chambers conceded Cisco was operating in a "wait-and-see type of environment".
When asked about the risk of another downturn, he said he was "looking to see more certainty on the global economy and in Europe and secondly, more certainty in terms of government policies that can have major impacts on their business.
"So it's a nice way of saying that we're not sure. We sure don't like the trend in the enterprise IT (information technology) spending, although we think in our product areas we control our own destiny in terms of share and market."
The cautionary remarks sparked worries that Cisco might be about to fall into a slump similar to the one that it just pulled out of late last year after trimming about $US1 billion in its annual expenses.
As a maker of big-ticket technology equipment with an international reach, Cisco is considered to be a good gauge of the swings in the global economy.
Cisco underscored its concerns about the economy by predicting its revenue for the current quarter, which runs May to July, will increase by just 2 to 5 per cent from the same time last year. The average estimate among analysts surveyed by FactSet had called for a 7 per cent increase in revenue.
The prospect of weak revenue covers Cisco's fiscal fourth quarter — typically the company's busiest period. Although management didn't look beyond the current quarter, investors are likely wondering whether the business climate for Cisco will be even worse.
Chambers sought to reassure analysts telling them, "We will muddle through this with a little bit of bumps on the road."
Cisco earned $US2.2 billion, or 40 cents per share, during its fiscal third quarter, which ended April 28. That compared with net income of $US1.8 billion, or 33 cents per share, at the same time last year.
Revenue rose 7 percent from last year to $11.6 billion, matching analyst projections.
Cisco's showing contrasted with revenue downturns in the most recent quarters at two of its major rivals, Juniper Networks and Alcatel-Lucent. The earnings growth also provided the latest sign that Cisco's recently completed overhaul is paying off.
In that reorganisation, Chambers laid off workers and dumped operations that he believed were distracting the company from its main business of selling computer-networking equipment.
But Chambers stressed Cisco may be facing economic challenges beyond its control.