Cisco: Economic Outlook Bleak

November 6, 2008  

It’s going to get worse.

It’s not a good time to be standing behind the fan

That’s what Cisco CEO John Chambers said about the economy on a call to discuss his company’s first-quarter earnings Wednesday. Chambers, you’ll remember, warned in November that tech spending was getting “lumpy.” That pronouncement made him the first big-name tech executive to acknowledge publicly that what was then just a housing slowdown would have a broader impact on the economy.

Chambers promised “a very candid discussion” of the economy at the outset of the call. After doing away with the formalities–Cisco’s revenue grew 8% from the year-ago quarter and net income was off 0.2%, or essentially flat–Chambers said that conditions changed dramatically over the last couple of months. While orders were up 7% year-over-year in August, they dropped 9% in October.

“We are seeing customers not just in the financial automotive or retail sector, but across most of our enterprise industries facing what they view is a very challenging business environment,” he said. “This started in the US, it then in our opinion expanded to Europe, then to emerging market theater, and now to Asia.”

In a shot over the bow of other tech companies, Chambers said that because the vast majority of Cisco’s revenue is nonrecurring–reflecting new orders that are booked and delivered–the slowdown that Cisco has seen over the last couple of months “is a good indicator of new spending patterns” for the industry as whole.

Chambers stressed that Cisco would be fine in the long term, but forecast that revenue for the current quarter would decrease 5% to 10% compared to the year-earlier period. Cisco’s stock was down about 5% in after hours trading.

-Ben Worthen