Cisco: Economic Troubles Aren't Over

Slow growth will continue through the next two quarters at least, CEO John Chambers says

Craig Matsumoto, Editor-in-Chief, Light Reading

August 5, 2008

3 Min Read
Cisco: Economic Troubles Aren't Over

Cisco Systems Inc. (Nasdaq: CSCO) is still getting a yellow light from the U.S. economy, CEO John Chambers said today, as the company conceded that its weakened rate of growth will continue for the rest of this calendar year.

Cisco reported quarterly revenues that crossed the $10 billion mark for the first time in the company's history. (See Cisco Reports Q4.) But its long-term growth target of 12 percent to 17 percent per year -- to which Chambers is sticking doggedly -- will have to wait out at least two more quarters of relative weakness.

"Our best estimate... is that the current economic challenges will remain with us for the next few quarters," Chambers said on a conference call with analysts this afternoon.

Specifically, Cisco expects revenues for its fiscal first quarter -- which ends in October -- to be just 8 percent higher than the previous year's. That's a $10.32 billion target, versus the $10.39 billion analysts were expecting.

Likewise, second-quarter revenues will be just 8.5 percent higher than the previous year's.

Cisco usually gives some full-year predictions when its fourth fiscal quarter wraps up, but citing the unpredictable economy, Chambers gave a forecast for just the next two quarters.

Analysts' predictions for the next few quarters were muted already. That's because in February, Cisco began warning about lowered customer spending, saying it was an effect of the weakened U.S. economy. (See Cisco Sounds Warning Bells and Cisco's 'First Inning'.)

At the time, Chambers said the effect would last for at least several months. In May, he said it was still looking like a short-term thing. (See Cisco's Q3 Hits the Flats.)

Now, he's admitted it's not going away any time soon.

Still, Chambers stressed that Cisco doesn't expect the tough economy to be a long-term problem and noted that the company will continue to invest aggressively.

Cisco's stock was up 85 cents (3.8%) to $23.50 per share in after-hours trading at press time.

It's important to note Cisco has never said growth would stop, just that it would be slower than Cisco (and Wall Street) would like. During the fourth quarter, sales into U.S. enterprises -- the primary problem spot Cisco identified back in February -- were up 13 percent from the previous year.

During the third quarter, which ended in April, Cisco's U.S. enterprise sales were 6 percent higher than a year earlier.

Separately, Chambers noted that Cisco's book-to-bill ratio during the fourth quarter was "comfortably above one," a sign that orders are at least growing.

For its fourth quarter, which ended July 26, Cisco reported revenues of $10.4 billion and net income of $2 billion, or 33 cents per diluted share, compared with the previous quarter's revenue of $9.8 billion and net income of $1.8 billion, or 29 cents per share.

For its fourth quarter a year ago, Cisco reported revenues of $9.4 billion and net income of $1.9 billion (31 cents per share).

— Craig Matsumoto, West Coast Editor, Light Reading

About the Author(s)

Craig Matsumoto

Editor-in-Chief, Light Reading

Yes, THAT Craig Matsumoto – who used to be at Light Reading from 2002 until 2013 and then went away and did other stuff and now HE'S BACK! As Editor-in-Chief. Go Craig!!

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