Cisco cautious as sales fall 18%

Cisco Systems Inc. Chief Executive John Chambers said it was too soon to call a recovery and forecast another drop in quarterly revenue, sending its shares 3% lower.

The outlook from the world's largest network equipment maker overshadowed stronger-than-expected quarterly results.

While the revenue outlook was within estimates, the downbeat comments from the CEO came amid growing expectations that the global economic slowdown may be on the mend, and that companies will again invest in technology equipment.

Cisco (CSCO, Fortune 500), which makes routers and other network equipment, said it expects fiscal first-quarter revenue to fall by 15 to 17% from a year earlier. That was in line with expectations for a drop of about 16%, according to Reuters Estimates.

Consumers slow to spend. Tighter credit and a focus on expenses have made it harder for Cisco customers to invest in big-ticket technology equipment. Cisco's high-end router, CRS-1, for example, can cost as much as $1 million each.

Cisco is also one of the first large-cap technology companies to report results that include sales from most of July, making it an early indicator of trends in technology spending.

The U.S. company reported an 18% fall in fiscal fourth-quarter revenue as customers held back spending on network equipment.

Chambers told analysts on a conference call that it was too soon to call a recovery, despite "positive signs" in the economy and Cisco's orders.

Digesting the results. Revenue in the fiscal fourth quarter ended July 25 fell to $8.5 billion from $10.4 billion in the year-earlier period.

That was in line with Wall Street's average forecast, according to Reuters Estimates. The company had forecast a fall of around 17% to 20%.

Its profit was marginally better than expected.

Quarterly net profit fell to $1.1 billion, or 19 cents a share, from $2.0 billion, or 33 cents a share, a year ago. Earnings excluding items were 31 cents, above the average analyst forecast of 29 cents, according to Reuters Estimates.

Chambers was once seen as one of Silicon Valley's most enthusiastic cheerleaders, but his recent comments have been somewhat cautious.

He said a year ago that most customers expected a turnaround by the end of 2008, and that Cisco was setting its budget accordingly. But Wednesday, he said he saw positive trends in orders but it was too early to declare a recovery.

Shares in Cisco initially rose about 3% after its quarterly results slightly beat expectations, climbing from a close of $22.17 on Nasdaq.

After Chambers' comments on the call, the stock backpedaled and turned negative.
Chambers said the company was done restructuring and was now shifting its focus to growth. He said the company's headcount reduction slightly exceeded its previously announced target of about 1,500 to 2,000 jobs.