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Cisco Sounds Sour Bellwether Note But Says 'We Are Talking Ouselves into This Slowdown'

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Cisco Sounds Sour Bellwether Note But Says 'We Are Talking Ouselves into This Slowdown'

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Coming off what turned out to be a relatively strong December quarter, when it met its forecasts on the nose, Cisco is projecting a growth rate of only 10% for the “next few months,” disappointing Wall Street, which was hoping for a more buoyant projection of 13%-17%.

Cisco said setting guidance was a “challenging” exercise and used its slacken-off 10% growth rate in January, lower than November or December – the first time it missed its internal forecasts “in a long time,” it said – as well as what it's hearing from customers as a model for the immediate future, calling such an extrapolation "prudent." For the year, it said it expected to be at the low end of 13%-16% year-over-year growth.

It was Europe, where its crystal gazing was off, not the U.S. that rang its warning bell. By geography, Cisco saw growth of 24% in emerging markets, a trend it expects to increase to maybe 30%, 23% in Asia-Pacific, 12% in the U.S. and 8% in Europe. The public sector in Europe dropped 6%, Cisco said.

Cisco took on new meaning as a significant economic indicator after CEO John Chambers tumbled the market three months ago by warning that the difficulties that financial institutions, automotive industry and retail were having weren’t isolated and were having a negative impact on companion businesses like technology.

The company closed the December quarter with earnings of $2.1 billion, or 33 cents a share, up 6%, on revenues, up 16.5%, of $9.8 billion, better by a shade than it expected. It realized a gross margin of 65.5%.

Chambers described the economy as a “relatively short-term challenge” and reminded people that 10% growth was still pretty good. He is unsure if the softening will last "one, two or three quarters," but thinks "we are talking ourselves into this slowdown."

He believes Cisco will come out of any downturn stronger than it is. He thinks it has a leadership position in the Web 2.0 transition, which he expects to transform business models as a "speed unseen before."

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