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Optical/IP

Cisco's Chambers Glows at N+I

LAS VEGAS -- Networld+Interop -- Cisco Systems Inc. (Nasdaq: CSCO) CEO John Chambers, speaking here today to a packed ballroom in the Las Vegas Hilton at the Networld+Interop tradeshow, was the life of the party after his company's earnings fueled a poweful rally in technology stocks.

Cisco announced better-than-expected third quarter 2002 earnings last night, which helped spark an 8 percent rise in the Nasdaq Composite Index today (see Cisco Tops Expectations). Cisco’s stock closed up $3.19 (24.39%) to $16.27 today. The good news buoyed the entire sector, with Cisco's competitors all seeing gains as well. Extreme Networks Inc. (Nasdaq: EXTR) closed up 2.23 (30.01%) to 9.66; Foundry Networks Inc. (Nasdaq: FDRY) was up 0.77 (15.84%) to 5.63; and core routing rival Juniper Networks Inc. (Nasdaq: JNPR) closed up 1.19 (14.12%) to 9.12, just one day after hitting an all-time low (see What's Eating Juniper's Stock?).

“It’s nice to see so much green for a change,” Chambers joked with the audience as the CNBC tickers raced across the bottom of the flat-screen TV used in the company’s product demonstration during his talk. “It’s a real pretty sight.”

During his hour-long talk and the question-and-answer period that followed for press, Chambers emphasized growth in productivity and business resiliency as two key factors that will help pull companies out of the economic slowdown. While he stopped short of calling a bottom to the downturn, he used Cisco as an example to show how the use of Internet-enabled services can help companies improve their bottom lines. He said that by continuing to improve corporate efficiency, companies will recover more quickly and spur recovery throughout the economy.

Since its early days, Cisco has practiced what it preached in terms of using Internet and e-commerce applications to reduce costs and improve productivity. Chambers said that the company saves about $1.7 billion per year by virtualizing many functions such as manufacturing, employee training, and customer supply-chain operations.

He acknowledged that Cisco’s unexpected performance this past quarter was due in large part to its cost reductions and improved productivity. Analysts following the company agree. Mark Sue of Frost Securities Inc. issued a research note this morning in which he points out that despite flat growth in third-quarter revenues, Cisco was still able to post pro forma earnings of $0.11, beating consensus estimates of about $0.09.

“Execution continues to be Cisco's key strength during an environment of moderated near-term growth,” he wrote.

Chambers also talked about economic recovery on a macro-level. He said he expects the U.S. to lead the world in recovery, with the U.K. and Germany likely to follow. He sees small and medium-sized business as most likely the first to recover, with the enterprise and the service-provider markets following.

“We are in a ‘show me’ type of economy right now,” he said. “Most CEOs I talk to continue to be very cautious. They aren’t going to start spending until they see revenues and profits pick up. And even then they are going to wait two to three to six months before they really start spending.

“What history has taught us, is that recovery is slow. This isn’t a recession we’ve been experiencing. For the tech sector it has been a major depression.”

But Chambers emphasized that the light at the end of the tunnel is coming. Again using his own company as an example, he said that the benefits of improved efficiency are realized three years into implementation. Once applications are installed and processes are set into place, companies can reap the benefits more cost effectively. And when companies start to see revenues and profits growing, they will once again start buying gear to upgrade their own networks and will also look to new service offerings from their service providers.

He emphasized that companies need to get themselves ready for recovery now, so that when the economy picks up they can gain market share over their competitors. He also said that because Cisco has already improved its operations, it is in a better position to seek out new markets.

“We can go out and invest in other areas like the service provider market,” he told a group of reporters after the session. “And we’ll have an advantage, because many of our competitors are just trying to survive right now.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
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macsteelship 12/5/2012 | 3:08:27 AM
re: Cisco's Chambers Glows at N+I Hi,

I'm planning update my entire networking equipment and I have to choose between this two brands.
For one hand Cisco offers me:

1 Catalyst 4506 (Layer 3 - Core Switch)
13 Catalyst 2950SX (Layer 2)

And Nortel:

1 Passport 1624G (Layer 3 - Core Switch)
13 Baystack 470 (Layer 2)

I want that my network be fast and stable.
Which one you recomend it?

Thanks,
Mariano.
enigmata9 12/4/2012 | 10:26:52 PM
re: Cisco's Chambers Glows at N+I He's crowing about the fact that Cisco is well positioned to survive amongst the bloodbath of the last year and a half. The key is that revenues aren't in a nosedive like so many other of Cisco's competitors. All in all, I'd say that's something to crow about.
maryhadalambda 12/4/2012 | 10:26:52 PM
re: Cisco's Chambers Glows at N+I No revenue growth, flat sales. What's this guy got to crow about? I hear he's auditioning for the role of Truman Capote ...
wilecoyote 12/4/2012 | 10:26:51 PM
re: Cisco's Chambers Glows at N+I Are you kidding? I mean really...kidding, or just naive?

Cisco has $21.5 B in cash. They are profitable. They showed growth while Juniper, Nortel, Ericsson, Alcatel and Lucent all fell down, hard. In the worst technology market in two decades, Cisco has now won in their key markets. Yes, they won. They are the Microsoft for communications, without the antitrust. Get over it.
gumbydammit 12/4/2012 | 10:26:50 PM
re: Cisco's Chambers Glows at N+I
How many companies (and employees) would KILL for flat growth right now?

CAW, CAW.......CAW!
/gd.

===========================
No revenue growth, flat sales. What's this guy got to crow about? I hear he's auditioning for the role of Truman Capote ...
let-there-be-light 12/4/2012 | 10:26:50 PM
re: Cisco's Chambers Glows at N+I Who is naive here?

Why compare Cisco with LU, Alcatel, and Nortel and spout about the toughest technology market in living memory?

Why not compare Cisco with Intel or Microsoft? You might as well.

Stupid is as stupid does
wilecoyote 12/4/2012 | 10:26:49 PM
re: Cisco's Chambers Glows at N+I OK Forrrest...thanks for clarifying: you are naive. Now that we've got that squared away, let's look at the facts:

I'm comparing their "real" competitors, or the companies that were once positioned to compete against them.

Consider this: Cisco, with their cash and market cap, can buy almost all of these companies combined.

And, what's wrong with comparing with Intel and Microsoft? They too have tens of billions in cash and can win any battle they really want to win. Ain't nothing wrong with that.
let-there-be-light 12/4/2012 | 10:26:48 PM
re: Cisco's Chambers Glows at N+I I apologize. My stupid comment was WAY out of line.

Nevertheless, comparing Cisco with those telecom companies is very misleading.

What we have is a telecom meltdown, and not an enterprise meltdown. Cisco totally dominates the enterprise, and is doing extremely well, so no real surprises and nothing to really crow about. If the stock market wants to take off on another flight of fancy, fine with me...(even LU's stock price went up today, how ridiculous can you get??)

Now, if you were to show me Cisco increasing revenues in their telecom part of the business, I'd be really impressed..

Until then, remember, pride comes before a fall..
wilecoyote 12/4/2012 | 10:26:47 PM
re: Cisco's Chambers Glows at N+I Alright, enough. You usuall have interesting insights here so let's retract our claws.

I personally think Cisco was smart to never take its eye off the golden goose of enterprise networking. It is the largest business they have and nicely profitable. What they are doing right now is waiting until the market looks ready to recover in the carrier world (could be a few years) and they will start making moves to build a worthwhile product line when the time is right.

Who can you really compare Cisco to anyway? Extreme is only around to keep the DOJ off Cisco's back, selling as a second source (not a bad place to be in some ways, like a pilot fish on a shark, eating up scraps but hey you're alive!). Foundry and Riverstone are unidimensional, one product companies despite the hype, and there is no differentiation in their product lines. Startups? Please. Every one of them is begging to get cheap Cisco stock.

Juniper can't get out of its own way now.

So, the relatively large systems companies are the only near term competition because if push comes to shove, they can buy most of the smaller firms.

I'm impressed with financials right now. Not necessarily who's winning contracts in the carrier world. Financials are everything for at least another 12 months. Technology is taking a back seat.

netgenius 12/4/2012 | 10:26:47 PM
re: Cisco's Chambers Glows at N+I As an unhappy Cisco shareholder, I munch on my coal cake and listen to the tings of Las Vegas Champane glasses and how good the "green" looks.

Hmmm...this coal cake sucks....said the peasant.

We know how this story ends.
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