Cisco CEO warns tough decisions ahead

NEW YORK/SAN FRANCISCO Thu Apr 7, 2011 1:28pm EDT

Cisco Chairman and CEO John Chambers delivers a speech at the GSMA Mobile World Congress in Barcelona February 16, 2011. REUTERS/Gustau Nacarino

Cisco Chairman and CEO John Chambers delivers a speech at the GSMA Mobile World Congress in Barcelona February 16, 2011.

Credit: Reuters/Gustau Nacarino

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NEW YORK/SAN FRANCISCO (Reuters) - Cisco Inc Chief Executive John Chambers, days after admitting that the company he has led for 16 years had lost its way, warned of competitive pressures, depressed public sector spending and "tough decisions" that lay ahead.

Chambers told analysts and investors at a Wells Fargo technology conference on Thursday that Cisco is a "company that has many strengths, and a company that has some weaknesses," pointing to slow decision-making and weak execution.

As expected, the CEO -- one of the industry's longest-serving -- promised to invest heavily in video products, such as the corporate videoconferencing Telepresence service, but otherwise kept his cards close to the vest.

His comments reflected those he made to employees earlier this week. In a remarkably candid memo, he admitted the one-time technology bellwether and Wall Street darling would need to take bold steps to restore its tarnished credibility.

In his presentation on Thursday, he told investors to prepare for crucial changes in the weeks and months ahead, but provided little detail.

"Are we going to make some tough decision and bold decisions about where we don't spend? Absolutely," said Chambers, among the tech world's most respected corporate chieftains.

One area where Chambers made clear he wants to press ahead is video, a business where he said the company would "double down." Chambers also said the routing business is "in very good shape" but said the company faces intense competition and hurdles in the other pillar of its core business, switching.

"Switching is our challenge," he said. "It's going to be a tough market for us" given the intensity of competition from the likes of Juniper Networks Inc, Hewlett Packard Co

PROGNOSTICATIONS

He also noted that public sector spending remains depressed in the United States and elsewhere and has been further thrown into question by political unrest in the Middle East and by the natural catastrophe in Japan.

Considered one of Silicon Valley's top prognosticators, Chambers was among the first to warn of the impact of the financial crisis on the sector in late 2007.

Cisco's status has been somewhat diminished lately, after its last two quarterly results disappointed the market. Cisco said in November that sales growth would be lower than analysts had expected. In February, it warned of dwindling public spending and weaker margins from tough competition.

Cisco shares have dropped a third of their value over the past 52 weeks and the company has been criticized for losing touch with its customers and expanding too broadly into consumer products, such as set-top boxes.

Indeed, analysts speculate that Cisco may be forced to whittle down a largely unspectacular consumer-oriented business -- from Flip cameras to its Umi home conferencing product -- while refocusing on its core Internet routing and switching business.

Shares of Cisco fell 22 cents, or 1.2 percent, to $17.85 in afternoon trading.

(Editing by Tim Dobbyn and Gerald E. McCormick)

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