November 10, 2010 / 9:23 PM / 7 years ago

Cisco's outlook disappoints as tech shares wane

<p>The Cisco logo is displayed at the technology company's campus in San Jose, February 3, 2010. REUTERS/Robert Galbraith</p>

NEW YORK (Reuters) - Cisco Systems Inc (CSCO.O) forecast revenue far short of Wall Street’s expectations and warned of uncertain demand from Europe and other markets, sending its shares tumbling 14 percent.

CEO John Chambers, a well-regarded reader of economic and technology industry trends, cautioned of “short-term challenges” in spending in Europe, from service providers, and the public sector.

Admitting he was disappointed, Chambers predicted revenue growth of 9-12 percent in fiscal 2011, well below the 13.1 percent analysts had expected on average.

A projection for 3-5 percent revenue growth in the fiscal second quarter -- the current period -- also fell far short of Wall Street’s expectations for 13 percent.

The disappointing outlook from the tech-sector bellwether sent shares in fellow industry heavyweights down in extended trading. Microsoft Corp (MSFT.O) fell 1.6 percent, IBM (IBM.N) slipped 1.2 percent, and Intel Corp (INTC.O) dropped 2.1 percent.

“The challenges that we experienced in Q1 resulted in orders being below our initial Q1 sales order forecast by over $500 million,” Chambers told analysts on a conference call.

Cisco on Wednesday served up a 19 percent jump in quarterly revenue as a revived economy encouraged more spending on networks to route Internet traffic, but investors had hoped for stronger proof of a technology sector recovery.

“We did see several challenges in the quarter, as you would expect given some of the numbers we discussed,” Chambers told analysts on the conference call. “These areas include certain categories of our public sector segment, certain product in our service provider segment, and to a limited extent, Europe, in terms of business momentum.”


Cisco said revenue in the fiscal first quarter ended October 30, rose to $10.75 billion from $9.02 billion a year earlier. Analysts on average expected $10.74 billion, according to Thomson Reuters I/B/E/S.

Net profit rose to $1.9 billion, or 34 cents a share, from $1.8 billion, or 30 cents a share, a year earlier. Excluding items, earnings per share rose to 42 cents, beating Wall Street’s expectations by 2 cents.

Cisco’s customers, who cut back during the recession, have recently begun spending more on their network infrastructure, with phone companies buying more advanced equipment to handle growing smartphone traffic and corporate clients upgrading their data center equipment.

The pace of the recovery had been in doubt, particularly after Chambers spooked tech investors last quarter by citing “unusual uncertainty” among customers.

Shares of the company, which have gained 23 percent since hitting a year’s low at the end of August, crumbled to $21.15 in after-hours trade. They had climbed since hitting a year’s low at the end of August, as the tech sector rallied on hopes of a recovery in spending.

Reporting by Ritsuko Ando and Edwin Chan; Editing by Bernard Orr

Our Standards:The Thomson Reuters Trust Principles.
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