Cisco Systems Inc., the world's top
supplier of equipment for the Internet and other computer networks,
blamed the softening U.S. economy as it missed Wall Street's
earnings expectations for the first time in more than six years.
Cisco, widely seen as a barometer for the technology industry
and the Internet economy, earned $874 million, or 12 cents per
share, in its second quarter ended Jan. 27. In the same three-month
period a year ago, Cisco earned $816 million, or 11 cents per
Excluding one-time factors such as acquisition expenses and
research and development costs, Cisco earned $1.33 billion, or 18
cents a share. Analysts surveyed by First Call/Thomson Financial
were expecting 19 cents per share.
The company last failed to meet expectations in July 1994, and
had beaten forecasts by exactly one penny per share for 13 straight
Cisco had second-quarter sales of $6.75 billion, up 55 percent
from $4.36 billion.
"This quarter was even more challenging than we originally
anticipated in light of the abrupt slowdown in the U.S. and the
dramatic slowing of capital spending," Cisco chief executive John
Cisco's bottom line has benefited for years from the explosive
growth of the Internet and strong demand for the switches and
routers that make up computer networks.
At the root of Cisco's problem was a slowdown in capital
spending, particularly by smaller U.S. telecommunications companies
such as Internet service providers. Such businesses showed a 40
percent decrease in spending from the first to second quarter.
"This capital spending trend could get worse before it starts
to improve," Chambers said.
Cisco is expecting the economic slowdown to persist for at least
two quarters, he said.
But sales growth for the entire fiscal year is expected to stay
within goals a 40 percent gain over fiscal 2000, said chief
financial officer Larry Carter. The company also will slow hiring
and trim other operational costs.
Analysts had reduced their forecasts for Cisco after earlier
warnings from Chambers in December, but many said the company's
outlook remains strong in the long term.
"It's important to note that 48 percent of their business comes
from international sources, so it's shielded somewhat from the
domestic spending slowdown," said Seth Spalding, an analyst for