Cisco signals technology spending slowdown

/ Source: The Associated Press

Cisco Systems Inc. CEO John Chambers’ troubling assessment of the health of U.S. technology spending late last year triggered a stock sell-off that chopped Cisco’s market value by one-third.

The plunge continued Wednesday on signs in Cisco’s second-quarter financial report that economic uncertainty will continue to hurt sales growth at the world’s largest Internet networking supplier.

Cisco shares fell after the company posted second-quarter results that matched Wall Street’s subdued expectations but gave disappointing guidance. The stock had slipped 18 cents to close at $23.08 in regular trading.

The San Jose-based company’s forecast of 10 percent sales growth in the third fiscal quarter fell below the 15 percent projection of Wall Street analysts.

The forecast spooked investors, who viewed it as a sign technology spending will continue to weaken as companies gird for a possible recession in the U.S.

Cisco executives acknowledged many companies are being cautious about investing in new Internet equipment, but they predicted growth will soon pick up again, helped by surging demand in emerging markets.

“It’s important to keep in perspective that even in these economic times, we’re seeing solid growth on a year-over-year basis,” said Dennis Powell, Cisco’s chief financial officer.

Powell said Cisco experienced sudden slowdowns in January in several markets in the U.S. and Europe. Uncertainty about how long the slump will continue prompted the company to be “prudently conservative” with its guidance, he said.

Investors have punished Cisco’s stock severely in recent months on fears the company isn’t as insulated from U.S. economic pressures as previously thought.

The stock price has fallen by more than 30 percent since Chambers warned in November that weakening demand among major customers would probably slow Cisco’s growth. He made the comments while discussing the first-quarter report.

In most of 2006 and 2007, investors flocked to Cisco’s stock, doubling its price to top $34 and sending the company’s market value above $200 billion.

Cisco is in the sweet spot of providing the networking gear companies need to handle a deepening flood of bandwidth-intensive Internet traffic. But economic jitters have caused many corporations and Internet service providers to tighten their purse strings.

Cisco’s second-quarter report showed the company continues to profit from heavy Internet investment, however.

Its net income was $2.06 billion, or 33 cents per share, during the three months ended Jan. 26, up 7 percent from $1.92 billion, or 31 cents per share, in the same period a year earlier. Cisco’s profit in the first half of the fiscal year was 21 percent higher than a year earlier.

Excluding one-time charges, Cisco made a profit of 38 cents per share, matching the figure predicted by analysts polled by Thomson Financial.

Sales climbed more than 16 percent during the latest period, rising from $8.44 billion to $9.83 billion. Analysts were expecting $9.8 billion.