Always KillerBy Reuters | Posted 2010-08-12 Email Print
Cisco's CEO John Chambers warned of "unusual uncertainty" in the economy and offered a revenue forecast that disappointed analysts. Chambers noted that customers are seeing mixed signals in the market, but added that sales gained strength in the last month of the quarter.
Cisco shares slumped to $21.82 in extended trading after closing 2.4 percent lower at $23.73. They have fallen nearly 9 percent so far this year, hurt by worries of slower growth in Europe and China.
Cisco is one of the technology sector's prime bellwethers due to its broad, global operations. Since Cisco's latest results are for the full month of July, instead of June for many of its peers, they are also seen as an early indicator of industry trends.
Cisco's cautious outlook came on the heels of a bleaker assessment of the economy by the U.S. Federal Reserve, which said on Tuesday the pace of recovery had slowed in recent months. Chambers said many customers he had spoken with recently would agree with the central bank.
"There are some challenges that are contributing to an unusual amount of conservatism and even caution," Chambers said.
Analysts said another concern was a decline in gross margin to 64.1 percent from 65.2 percent in the previous quarter. The company forecast it would be around 64 percent in the first quarter, lower than some analysts had expected.
Higher component costs due to supply shortages had hurt margins. Supply conditions were improving, but still challenging, Cisco said.
Some analysts have said profitability could worsen as Cisco enters more competitive markets such as consumer electronics and data center servers.
Now, in addition to industry peers like Juniper Networks Inc (NYSE:JNPR), Alcatel-Lucent SA (ALUA) and Huawei Technologies Co Ltd, it competes with a wide range of technology firms like International Business Machines Corp and Hewlett-Packard Co (NYSE:HPQ).
Chambers, however, said Cisco had the distinct advantage of a broad product portfolio that includes network equipment as well as software and electronics like the Flip video camera.
"Things we control or influence are in great shape. Our growth in terms of our long-term aspirations looks very good," he said. He reiterated the company's long-term target of 12 percent to 17 percent annual revenue growth.
Since Chambers became CEO in 1995, Cisco has grown from a company with $1.2 billion in annual revenue to around $40 billion. Chambers is widely credited with building the company through aggressive sales strategies and a series of acquisitions, including a recent deal for Norwegian videoconference company Tandberg. (Reporting by Ritsuko Ando; Editing by Richard Chang)