Cisco Jan. Business `Slow' on Economy Slump, CEO Says
01/28 10:46 (Update2)
By Tom Giles
Davos, Switzerland, Jan. 28 (Bloomberg) -- Cisco Systems Inc.'s business in January was slow as a U.S. economic slump prompted customers of the world's largest Internet equipment maker to reduce spending, said Chief Executive John Chambers.
The range of estimates of the company's fiscal year growth should be wider than previously expected, he added.
``Business in January was a little bit slow,'' Chambers said in a briefing for journalists during the annual meeting of the World Economic Forum. ``The business momentum of most of my customers was very tough in December, and equally tough in January.''
In recent months, several Cisco rivals, including Foundry Networks Inc. and Efficient Networks Inc., lowered profit and sales forecasts or fell short of expectations as spending for telecommunications services and equipment slowed.
Chambers told journalists that Cisco's staff growth rate will slow ``dramatically'' in the coming months and the company may need to put off some expansion plans until the economic slowdown - - which he says may be a ``two-quarter phenomenon'' -- ends.
Chambers said in early January that the second quarter, which ends Jan. 27, was ``a little bit more challenging'' than expected and that he was looking for ``a wider range of estimates'' from analysts. Cisco's fiscal year runs from August to July.
Today, he said, ``We're going to get a pretty wide range of estimates in terms of what may occur in the market.'' That range is going to be ``wider than we said'' in early January. He did not provide a target.
Missed Target?
Chambers suggested that the company may miss its target of annual revenue growth of 30 percent to 50 percent this fiscal year, though he said he's ``absolutely, very confident'' that he'll meet that target in the next three-to-five years.
``I have said that in economies that are growing reasonably well, (Cisco) will grow 30 to 50 percent,'' he said. ``In economies that slow, we will go below 30 to 50 percent. And we may go negative if it's a slowdown that's very rough, that lasts a long period of time.''
Cisco's staff growth rate will slow and the company may delay some expansion plans, Chambers said.
``You will now see (staff growth) slow dramatically and we will only start to grow staff after we see the economy in the U.S. coming back out,'' he said. ``We're not cutting jobs.''
``We're being a little more selective and more careful about headcount allocation with'' plans for expansion, he said. ``Maybe not try to run quite as fast, as early - or maybe say here is my target acquisition but do it one quarter later.''
``Are we being more careful about our expenses -- yes,'' he said.
Fed Help
Federal Reserve policymakers, who meet to decide on interest rates this week, are likely to cut the overnight inter-bank lending rate by a quarter point, he said. ``I'd be extremely disappointed and almost shocked'' if the Fed doesn't cut rates, he said. If U.S. policymakers don't ``move quickly, the slowdown will translate to the rest of the world.''
Following Chambers' January comments, made at the Morgan Stanley Dean Witter Internet, Software & Networking Conference in Scottsdale, Arizona, some analysts revised down their estimates for the company's fiscal year earnings.
Morgan Stanley Dean Witter & Co. analyst Chris Stix said he expected Cisco to earn 77 cents a share and have revenue of $28.6 billion in the fiscal year ending July 28, down from a previous forecast of 79 cents and $30 billion. Profit estimates from Wall Street analysts exclude acquisition and stock-option costs, investment gains and losses. |
