Cisco exec says right to keep prudent outlook
NEW YORK (Reuters) - A senior Cisco Systems Inc (CSCO.O) executive said on Thursday it was best to maintain a "prudent" outlook, adding to investor wariness following an analyst downgrade of Cisco shares.
Robert Lloyd, Cisco's senior vice president for the United States, Canada and Japan, said the company gave a cautious outlook in February and it is "appropriate to remain that way until we see any other dynamics in the market."
Cisco shares were down 2.9 percent to $24.23 in afternoon trade after briefly dipping to as low as $24.01. The Nasdaq Composite Index .IXIC, by comparison, firmed slightly.
Cisco, the world's biggest maker of routers and switches which direct Internet traffic, warned in its last earnings report of a rapid slowdown in U.S. and European orders, forecasting fiscal third-quarter revenue would rise just 10 percent. Analysts had expected 15 percent growth.
It had also said its full-year revenue growth would likely to be around the lower end of its target range of 13 percent to 16 percent.
Lloyd's comments, in a conference call hosted by Goldman Sachs, followed a report by UBS analyst Nikos Theodosopoulos, who downgraded Cisco shares to "neutral" from "buy."
"Our industry checks show orders are slowing, which gives us concern about the July quarter," Cisco's fourth, Theodosopoulos said.
Lloyd, however, said he did not expect that Cisco would need to lower equipment prices in response to the recent market downturn, and said demand for Cisco products would continue to be driven by online video and other new Internet uses.
"I want to reiterate that many of the long-term growth drivers that we've been focused on continue to be valid even in some of the challenging environments that we're facing," Lloyd said.
"That trend of video ... the expectation for continued growth in that area makes us most comfortable with the long-term potential of the service provider market," he said.
Supporting the view that companies need to invest in technology despite a weaker economy, a survey by research and advisory firm Gartner on Thursday showed global information technology budgets are set to grow 3.3 percent in 2008, unchanged from last year.
"This indicates that IT budgets are not the 'target rich' environment for cost-cutting they have been in the past. However, there is some softness, particularly in the U.S.," said Mark McDonald, a research executive at Gartner.
Goldman Sachs analyst Simona Jankowski reiterated her "Conviction List Buy" rating on Cisco shares, recommending taking advantage of their current valuation of 15 times forecast earnings for 2009.
"We view Cisco as relatively better positioned than other CommTech companies in the current downturn, as it has the ability to temper the macro headwinds through share gains, exposure to secular tailwinds, and favorable product cycles," she said in a research note after Lloyd's comments.
(Reporting by Ritsuko Ando, editing by Gerald E. McCormick)
