Cisco sees hard times ahead

Networking giant and technology industry bellwether beats analyst expectations in second quarter but disappoints with outlook.

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By Kenneth Musante, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- The global economic downturn will continue to hammer computer networking giant Cisco Systems Inc., chief executive John Chambers said Wednesday.

In its current quarter, Cisco expects to see revenue decline between 15% and 20%, he said in a conference call with analysts.

Analysts expect to see revenue fall by 11% in the third quarter, according to a poll by Thomson Reuters.

Shares of Cisco (CSCO, Fortune 500) dropped about 4% in after-hours trading after adding 22 cents to close at $15.84 in the regular session.

For its fiscal second quarter ended Jan. 24, Cisco reported a 27% drop in net income, but came in ahead of analyst estimates on earnings and revenue.

Profit totaled $1.5 billion, or 26 cents per share, compared with $2.06 billion, or 33 cents per share, a year ago.

Excluding certain one-time charges, the company earned $1.9 billion, or 32 cents per share. Analysts polled by Thomson Reuters, who usually strip out one-time items, had forecast 30 cents per share.

Sales dropped almost 8% to $9.09 billion from $9.83 billion in the same period last year. Analysts had forecast $9 billion.

Because of its size and the number of markets in which it does business, Cisco is often considered a bellwether for the technology industry.

"This is going to make people sit back and realize that this economy is going to be even harder," said analyst Kenneth Muth with wealth management firm Robert W. Baird & Co.

Cisco has taken a number of measures to reduce costs and reorganize its business over the second quarter, including a hiring freeze. But Chambers expressed reluctance about cutting jobs in the near term.

"We are not going to consider (layoffs) at this time," he said. But he added, that if Cisco was forced to cut jobs, it would likely be a large cut of about 10% of its workforce. Cisco employed 67,318 workers worldwide at the end of the second quarter. To top of page

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