Fri, May 11, 2012 - Page 10 News List

Cisco’s cautious quarterly forecast rattles investors

AP, SAN FRANCISCO

Cisco Systems Inc on Wednesday raised the specter of a sharp slowdown in technology spending, rattling investors already fretting about the economy’s fragile condition.

The red flag raised by the world’s largest manufacturer of computer-networking equipment overshadowed a solid showing in the most recent quarter.

Investors instead fixated on a sobering forecast for the current quarter that Cisco CEO John Chambers traced to skittish customers who are waiting longer to close deals and spending less money because of growing uncertainty about the economy, particularly in Europe and India.

UNCERTAINTIES

“We are still in an uncertain environment economically,” Chambers told analysts in a conference call.

The cautionary remarks sparked worries that Cisco might be about to fall into a slump similar to the one that it just pulled out of late last year after trimming about US$1 billion in its annual expenses.

Those fears caused Cisco’s shares to plunge US$1.58, or more than 8 percent, to US$17.20 in extended trading on Wednesday.

Cisco underscored its concerns about the economy by predicting its revenue for the current quarter, which runs from May to July, would increase by just 2 to 5 percent from the same time last year. The average estimate among analysts surveyed by FactSet had called for a 7 percent increase in revenue.

The company, which is based in San Jose, California, expects its adjusted earnings for the period to range from US$0.44 to US$0.46 per share. Analysts had predicted adjusted earnings of US$0.49 per share.

The prospect of weak revenue covers Cisco’s fiscal fourth quarter — typically the company’s busiest period. Although management didn’t look beyond the current quarter, investors are likely wondering whether the business climate for Cisco will be even worse in the late summer and early fall.

Chambers sought to reassure analysts telling them: “We will muddle through this with a little bit of bumps on the road.”

Cisco earned US$2.2 billion, or US$0.40 per share, during its fiscal third quarter, which ended April 28. That compared with net income of US$1.8 billion, or US$0.33 per share, at the same time last year.

Revenue rose 7 percent from last year to US$11.6 billion, matching analyst projections.

Cisco’s showing contrasted with revenue downturns in the most recent quarters at two of its major rivals, Juniper Networks Inc and Alcatel-Lucent.

REORGANIZATION

The earnings growth also provided the latest sign that Cisco’s recently completed overhaul is paying off. In that reorganization, Chambers laid off workers and dumped operations that he believed were distracting the company from its main business of selling computer-networking equipment.

However, Chambers said on Wednesday that Cisco might be facing economic challenges beyond its control.

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