Cisco Quarter Margins Pressured by Price Competition

Analysts say a competitive environment is likely causing pricing pressure and lower margins at Cisco, which faces threats from HP in addition to its traditional competitors such as Juniper Networks

NEW YORK, Feb 9 (Reuters) - Network equipment maker Cisco Systems Inc's (NASDAQ:CSCO) CEO John Chambers spooked investors for the third time in as many quarters, warning of dwindling public spending and weaker margins from tough competition.

Cisco shares fell 10 percent after hours on Wednesday. Shares of peers such as Juniper Networks Inc (NYSE:JNPR), F5 Networks Inc (NASDAQ:FFIV) and Riverbed Technology Inc (NASDAQ:RVBD) also declined, but the recurring let-downs raised questions about whether Cisco is still the industry bellwether it once was.

Chambers upset investors last August with a warning of "unusual uncertainty," and followed up last quarter with a weaker-than-expected outlook that he blamed on weak orders from debt-burdened government agencies.

He offered no relief this quarter.

"Unfortunately, we believe that our concerns in the public sector will continue to be challenging in the developed world for the next several quarters," he said, adding that Cisco's government accounts in the United States, Europe and Japan had all been hit in the fiscal second quarter.

"The challenges at state, local, and eventually federal level in our opinion will worsen over the next several quarters," he said of the U.S. market.

Chambers is one of Silicon Valley's longest-serving executives, and investors take his views on industry trends seriously. He was one of the first tech executives to flag the impact of the financial crisis on the sector in late 2007.

Investors have also looked to Cisco for signs of overall technology spending due to the breadth of its customer base, which ranges from small U.S. businesses to foreign governments.