Fri, Aug 13, 2010 page10

• Cisco warns of ‘unusual uncertainty’

  TECH SLIDE Shares in the firm dropped 8 percent in after-hours trading, as investors had hoped for a positive signal for the sector in the form of network equipment sales

  • REUTERS
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  Cisco Systems Inc CEO John Chambers warned of “unusual uncertainty” in the economy and forecast revenue that missed Wall Street targets, sending its shares plummeting and raising fears that a nascent recovery in technology spending could be derailed.

  The cautious comments from the man often known as Silicon Valley’s biggest cheerleader disappointed investors who had expected growing Internet traffic would spur stronger sales of Cisco’s network equipment and send a positive signal to the broader technology sector.

  “We are seeing a large number of mixed signals in both the market and from our customers’ expectations, and we think the words ‘unusual uncertainty’ are an accurate description of what is occurring,” Chambers told analysts on Wednesday.

  Shares in the networking giant and industry bellwether dropped 8 percent after-hours, weighing on other tech names. Rival Juniper Networks slid 3 percent in extended trading, while International Business Machines Corp was down more than 1 percent. EMC Corp fell more than 2 percent.

  Cisco was expected to depress Wall Street on yesterday, with Standard & Poor’s 500 futures down 0.4 percent and NASDAQ futures off 1.2 percent.

  Chambers said orders slowed in late June to early last month as worries mounted about debt problems in Europe, but strengthened at the very end of the quarter that ended on July 31. He added that he did not expect a double-dip recession.

  “He certainly sent investors mixed signals, but overall, it looks like orders ramped up towards the end of the quarter but weren’t strong enough to give the guidance that people were looking for,” said Bill Choi, analyst at Jefferies & Co.

  Cisco forecast its revenue this quarter would grow 18 percent to 20 percent from a year earlier, while the average analyst estimate had been for 21 percent growth to US$10.95 billion.

  Revenue in its fiscal fourth quarter ended on July 31 was also slightly below expectations at US$10.8 billion, up 27 percent from a year earlier, but still slightly below the average analyst forecast of US$10.9 billion, according to Thomson Reuters I/B/E/S.

  Cisco’s cautious outlook came on the heels of a bleaker assessment of the economy by the US 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 about 64 percent in the first quarter, lower than some analysts had expected.

  Higher component costs because of 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, Alcatel-Lucent SA and Huawei Technologies Co (華為), it competes with a wide range of technology firms like International Business Machines Corp and Hewlett-­Packard Co.

  “Things we control or influence are in great shape. Our growth in terms of our long-term aspirations looks very good,” Chambers said.

  He reiterated the company’s long-term target of between 12 percent and 17 percent annual revenue growth.
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