Advertisement

Cisco CEO Chambers sees U.S. recovery, emerging market challenges

A sign marking a Cisco office is pictured in San Diego, California November 12, 2012. REUTERS/Mike Blake

By Sinead Carew

NEW YORK (Reuters) - Cisco Systems Inc Chief Executive John Chambers said on Thursday he was beginning to see the U.S. market recover but cited challenges in emerging market economies such as Russia and Brazil.

Shares in Cisco fell almost 3 percent after Chambers provided more details about the company's November 13 dramatic revenue warning but did not change the guidance at the company's financial analyst conference in New York.

While emerging markets were "extremely challenged" right now, he expects them to grow 6 percent to 10 percent when they recover, Chambers said.

For the U.S. market, Chambers cited strong growth prospects in the enterprise market, as its sales pipeline for big deals, of between $1 million to $5 million, in that segment is up 20 percent or more. Enterprise customers account for about 23 percent of Cisco's overall revenue.

Cisco stunned the market on November 13 by warning that revenue would fall as much as 10 percent this quarter and could keep declining for several quarters. The company blamed factors from emerging economy weakness and political backlash in China to company-specific problems, such as market-share losses in network equipment and declining sales in set-top boxes.

In response to some investors' requests ahead of the meeting for details on why Cisco's financial outlook was so weak, Chambers said it was largely due to broader market issues rather than Cisco-specific issues.

Aside from emerging markets, Cisco's biggest problem in the quarter was a 13-percent decline in sales to service providers, which represent about 31 percent of Cisco's overall revenue.

Chambers said the drop in demand from service providers included a 6 percent decline in sales of set-top boxes, a 2 percent decline relating to its launch of new products and a 2 percent decline due to a loss of market share in equipment used at the edge of operator networks.

Some investors were hoping Cisco would provide a detailed plan Thursday for the future of its set-top box business where it has decided to forego some sales of less profitable products.

Cisco shares were down 48 cents, or more than 2 percent, at $20.40, a seven month low, in morning trading on Nasdaq. The shares had closed at $24 the day before Cisco provided its revenue warning on November 13.

(Editing by Bernadette Baum and Meredith Mazzilli)