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Cisco Meets Profit Expectations; Gloomy Outlook Sparks Tech Stock Upheaval

In an late-afternoon earnings call Wednesday, Cisco Systems Inc. revised its revenue growth forecast for the third quarter down to just 10 percent, with CEO John Chambers noting that the vendor saw a rapid slowdown in December and January orders. Ciscos third quarter revenue will be $9.8 billion, Chambers said, rather than the $10.19 billion expected. He went on to say that he expects the next couple of quarters to be “extremely challenging” as customers in the United States and Europe continue to be cautious in their enterprise spending.

Chambers cautious statements are being blamed for the companys shares falling 30 percent in Thursday trading, after an initial tumble of more than 8 percent in after-hours trading on Wednesday. It also sparked a broad-based sell-off of technology stocks, and the NASDAQ has lost all of its gains so far this year. The Cisco Effect is adding fuel to fears of a technology and telecom sector recession rearing its ugly head.

Cisco reported that revenue from the United States and Canada declined 4.5 percent from the previous quarter.

Nonetheless, the earnings report contains plenty of good news. Cisco met its profit predictions for the second quarter, which ended Jan. 26, and analysts predict Cisco to maintain a 15 percent growth going forward. Chambers himself said that he expects the slowdown to be relatively short-lived. Whether we return to our longer-term growth target of 12 percent to 17 percent in one or two quarters, or a little longer is yet to be determined, said Chambers.

Cisco reported that its net income was up year-over-year, coming in at $2.1 billion as opposed to $1.9 billion a year ago. Revenue grew nearly 17 percent to $9.8 billion, beating analyst expectations.

The vendor said its advanced technology unit, responsible for set-top boxes, video conferencing, telepresence and the like, came in at $2.4 billion, or a healthy 25 percent of the business. The switching unit is responsible for the largest portion 34 percent of revenue, totaling $3.3 billion. Routers contributed $2 billion in sales.

Cisco Systems Inc. www.cisco.com


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