Cisco sees revenue falling as economic woes spread

By Ritsuko Ando

NEW YORK (Reuters) - Cisco Systems Inc (CSCO.O) Chief Executive John Chambers warned that revenue could fall as much as 10 percent in the current quarter as an economic downturn spreads from the United States to Europe and Asia.

The company's shares fell 6 percent after Chambers's cautious outlook for the impact of a weaker global economy on the world's largest maker of network equipment, often seen as a bellwether in the technology sector.

"We do believe that the challenges that initially affected the U.S. have spread to other countries around the world," Chambers said.

Analysts said that meant Cisco's peers as well as the broader technology sector could see slower spending well into 2009. Chambers said it was hard to be sure about the outlook.

"It's probably the second most difficult time in my career in terms of my comfort level with the forecast," he said, noting that increasing Internet traffic meant there was still demand for network equipment and conditions were better than during the 2001 downturn.

Cisco, which makes routers and switches which direct Internet traffic, forecast revenue would fall 5 to 10 percent in the fiscal second-quarter from the year-ago period.

Orders decreased 9 percent in October from a year earlier. Chambers said geographic expansion which had helped offset weaker U.S. sales in the past, now provided little support as the downturn spread to Europe, Asia and emerging markets.

Cisco reiterated its long-term revenue growth projection of 12 to 17 percent, assuming that the global economy returns to normal.

DIFFICULT ENVIRONMENT

Cisco shares fell to $16.32 in extended trading after closing down 5.13 percent at $17.39 in regular Nasdaq trade. They have lost around half their value from a year earlier, but analysts were cautious about calling it a buying opportunity.

"It's a difficult environment," said RBC Capital Markets analyst Mark Sue. "Looking at the orders for October, clearly things are getting worse. Things are not going to snap back that quickly."

Shares of smaller rival Juniper Networks Inc (JNPR.O) fell 4 percent to $16.46 after-hours, adding to their 8 percent fall in regular trading.

"You've got credit contraction that's going to keep some people out of the market, and you certainly have a very opaque business environment that's probably going to keep a lid on technology spending," said Rick Franklin, analyst at Edward Jones.

For the first quarter, however, Cisco 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.

Net profit for Cisco's fiscal first quarter ended October 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.