November 6, 2008 / 1:19 AM / 9 years ago

Cisco sees revenue falling as economic woes spread

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.

Excluding items, profit rose to 42 cents a share from 40 cents, it said. Analysts on average had expected 39 cents, according to Reuters Estimates.

    Revenue rose 8 percent to $10.3 billion, which was in line with its own forecast and matched Wall Street expectations.

    “EPS is better than what we were looking for so they obviously held the line on expenses,” said Taunya Sell, analyst for Ragen Mackenzie, a division of Wells Fargo Investments.

    Cisco also said it aims to reduce spending for the full fiscal year by over $1 billion from its original budget.

    The results come a year after Chambers spooked the market by revealing that it was hit by “dramatic decreases” in orders from U.S. banks. Troubles in the financial sector have since filtered through to consumers and overseas markets.

    Analysts say tighter credit makes it harder for companies to invest in big ticket items like Cisco’s high-end routers. Cisco’s CRS-1, for example, costs around $500,000 to $1 million each.

    But even with the downturn and increased focus on healthy cash positions, Chambers said Cisco would be on the lookout for small companies to acquire.

    “It is perfect now to be acquiring small companies because small companies have no exit strategy, the IPO market is dead, and the price of these small companies is very attractive at the present time and probably will remain so,” he told Reuters.

    Acquisitions have been a key part of the San Jose, California-based company’s growth, including its 2006 purchase of cable set-top box maker Scentific-Atlanta and a deal last year for Web conferencing services firm WebEx.

    Cisco has grown into a $40 billion business from $1 billion since Chambers took the CEO role in 1995.

    Additional reporting by Sinead Carew, editing by Richard Chang

    0 : 0
    • narrow-browser-and-phone
    • medium-browser-and-portrait-tablet
    • landscape-tablet
    • medium-wide-browser
    • wide-browser-and-larger
    • medium-browser-and-landscape-tablet
    • medium-wide-browser-and-larger
    • above-phone
    • portrait-tablet-and-above
    • above-portrait-tablet
    • landscape-tablet-and-above
    • landscape-tablet-and-medium-wide-browser
    • portrait-tablet-and-below
    • landscape-tablet-and-below