Cisco Gives Weak OutlookBy Reuters | Posted 2008-02-07 Email Print
Cisco is the latest technology company to raise a warning flag about nervous consumers and businesses facing the threat of a recession.
NEW YORK/SAN FRANCISCO (Reuters)—Cisco Systems Inc gave a disappointing outlook on Wednesday and warned of a rapid slowdown in U.S. and European orders, driving its shares down 8 percent and adding to broader fears of a U.S. recession.
"It's the most cautious I've seen CEOs in the U.S. and Europe in many years," Chief Executive John Chambers said on a conference call after reporting quarterly results.
"We do think there is a very cautious attitude in the boardroom and that is different from six months ago."
Cisco is the latest of a slew of technology companies that have been raising warning flags about nervous consumers and businesses facing the threat of a recession, though Chambers did say he expected any slump to be fairly short lived.
Stalwarts like Apple Inc and Intel Corp have set financial targets short of many Wall Street estimates, while Google Inc reported soft revenues and Yahoo Inc said it faced 'headwinds' and planned to cut jobs.
"People are going to be skittish in coming weeks," said David Garrity, director of research at Dinosaur Research. "This reaction shows people will remain so," he said of the comments on weakening demand from Chambers, who last year had said the global economy was the strongest he had ever seen.
Cisco, the largest maker of the routers and switches that direct traffic on data networks, forecast fiscal third-quarter revenue to rise 10 percent, short of the 15 percent growth expected by Wall Street, according to Reuters Estimates.
It said it would not provide a fourth-quarter outlook due to uncertainty, but full-year revenue growth would likely be in the lower end of its target range of 13 percent to 16 percent.
The news dragged down tech shares in extended trading, with Hewlett-Packard Co, IBM, Microsoft Corp and Google all down between 1 percent and 2 percent.
Shares of Electronic Data Systems Corp fell 5 percent after the technology outsourcing company posted a lower-than-expected quarterly profit and weak outlook.
Cisco's diversification across corporate, consumer, telecommunications and government markets makes it a proxy for the overall health of global tech spending.
While investors have debated for months what impact the slowdown in the U.S. housing sector and its spread into other consumer markets would have on the global economy, the quarterly comments from Chambers have oracular powers.
He spooked markets in November by saying he saw dramatic first-quarter decreases in demand from U.S. financial institutions. Cisco's stock has fallen 29 percent since then.
"It's November all over again," Dinosaur's Garrity said. "He serves to drive the confirmation of what investors fear ... When John Chambers talks, people listen."
Cisco said it saw a rapid slowdown in orders between December and January. Orders growth in Europe slowed to 8 percent in the second quarter from 20 percent in the first. U.S. orders growth slowed to 12 percent from 13 percent, and emerging markets growth slowed to 20 percent from 35 percent.
Cisco said the European slowdown was from phone companies and the public sector, while in the United States, retail and transportation weakened and the financial sector bounced back.
Yet Chambers was careful to note that while Cisco missed its European forecast for the first time in many years, he does not expect the slowdown to last more than a matter of months.
"I don't mean to imply in any way we see things spiraling down," Chambers said. "I think this is going to be relatively short term based on what we're hearing from our customers and other groups."
For the fiscal second quarter ended January 26, Cisco said net profit rose 7 percent to $2.1 billion, or 33 cents per share, from $1.9 billion, or 31 cents a share, a year ago.
Earnings per share before unusual items were 38 cents, matching the average analyst forecast according to Reuters Estimates. Sales rose 16.5 percent to $9.8 billion in the quarter, also in line with expectations.
Cisco shares fell to $21.23 in after-hours trade, having earlier closed 0.8 percent lower on Nasdaq at $23.08.
By Sinead Carew and Duncan Martell
(Additional reporting by Eric Auchard in San Francisco, Jim Finkle in Boston and Tiffany Wu in New York, editing by Richard Chang and Braden Reddall)