NEW YORK/SAN FRANCISCO: Cisco Systems Inc gave a disappointing outlook on Wednesday and warned of a rapid slowdown in US and European orders, driving its shares down 7.5 per cent and only adding to broader fears of a US recession.
"It's the most cautious I've seen CEOs in the US and Europe in many years," Chief Executive John Chambers said on a conference call after reporting quarterly results. "We do think there is a very cautious attitude in the boardroom and that is different from six months ago."
Cisco is the latest of a slew of technology companies that have been raising warning flags about nervous consumers and businesses facing the threat of a recession. Stalwarts like Apple Inc and Intel Corp have set financial targets short of many Wall Street estimates, while Google Inc reported soft revenues and Yahoo Inc said it faced 'headwinds' and planned to cut jobs.
"People are going to be skittish in coming weeks," said David Garrity, director of research at Dinosaur Research. "This reaction shows people will remain so," he said of the comments on weakening demand from Chambers, who last year had said the global economy was the strongest he had ever seen. Cisco, the largest maker of the routers and switches that direct traffic on data networks, forecast fiscal third-quarter revenue to rise 10 per cent, short of the 15 per cent growth expected by Wall Street, according to media estimates.
It said it would not provide a fourth-quarter outlook due to uncertainty, but full-year revenue growth would likely be in the lower end of its target range of 13 per cent to 16 per cent. The news dragged down tech shares in extended trading, with Hewlett-Packard Co, IBM, Microsoft Corp and Google all down by 1 per cent to 2 per cent.
Shares of Electronic Data Systems Corp fell 5 per cent after the technology outsourcing company posted a lower-than-expected quarterly profit and weak outlook.
ORDERS SLOW
Cisco's diversification across global corporate, consumer, telecommunications and government markets makes it a proxy for the overall health of tech spending in the world. While investors have debated for months what impact the slowdown in the US housing sector and its spread into other consumer markets would have on the global economy, the quarterly comments Chambers make have oracular powers.
He spooked markets in November by saying he saw dramatic first-quarter decreases in demand from US financial institutions. Cisco's stock has fallen 29 per cent since then. "It's November all over again," Dinosaur's Garrity said. "He serves to drive the confirmation of what investors fear ... When John Chambers talks, people listen."
Cisco said it saw a rapid slowdown in orders between December and January. Orders growth in Europe slowed to 8 per cent in the second quarter from 20 per cent in the first. US orders growth slowed to 12 per cent from 13 per cent, and emerging markets growth slowed to 20 per cent from 35 per cent.
"It's the most cautious I've seen CEOs in the US and Europe in many years," Chief Executive John Chambers said on a conference call after reporting quarterly results. "We do think there is a very cautious attitude in the boardroom and that is different from six months ago."
Cisco is the latest of a slew of technology companies that have been raising warning flags about nervous consumers and businesses facing the threat of a recession. Stalwarts like Apple Inc and Intel Corp have set financial targets short of many Wall Street estimates, while Google Inc reported soft revenues and Yahoo Inc said it faced 'headwinds' and planned to cut jobs.
"People are going to be skittish in coming weeks," said David Garrity, director of research at Dinosaur Research. "This reaction shows people will remain so," he said of the comments on weakening demand from Chambers, who last year had said the global economy was the strongest he had ever seen. Cisco, the largest maker of the routers and switches that direct traffic on data networks, forecast fiscal third-quarter revenue to rise 10 per cent, short of the 15 per cent growth expected by Wall Street, according to media estimates.
It said it would not provide a fourth-quarter outlook due to uncertainty, but full-year revenue growth would likely be in the lower end of its target range of 13 per cent to 16 per cent. The news dragged down tech shares in extended trading, with Hewlett-Packard Co, IBM, Microsoft Corp and Google all down by 1 per cent to 2 per cent.
Shares of Electronic Data Systems Corp fell 5 per cent after the technology outsourcing company posted a lower-than-expected quarterly profit and weak outlook.
ORDERS SLOW
Cisco's diversification across global corporate, consumer, telecommunications and government markets makes it a proxy for the overall health of tech spending in the world. While investors have debated for months what impact the slowdown in the US housing sector and its spread into other consumer markets would have on the global economy, the quarterly comments Chambers make have oracular powers.
He spooked markets in November by saying he saw dramatic first-quarter decreases in demand from US financial institutions. Cisco's stock has fallen 29 per cent since then. "It's November all over again," Dinosaur's Garrity said. "He serves to drive the confirmation of what investors fear ... When John Chambers talks, people listen."
Cisco said it saw a rapid slowdown in orders between December and January. Orders growth in Europe slowed to 8 per cent in the second quarter from 20 per cent in the first. US orders growth slowed to 12 per cent from 13 per cent, and emerging markets growth slowed to 20 per cent from 35 per cent.
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