Cisco hit by gloomy outlook

Industry bellwether sounds note of caution for quarter ahead

Cisco's share price has taken a knock after chief executive John Chambers warned he expected modest sales growth in the vendor's fiscal third quarter.

The networking giant's second quarter results, for the three months to 26 January, were published yesterday and matched analyst expectations. But Chambers indicated he expected a 10 per cent increase in sales for Q3, well below the 15 per cent projected on Wall Street.

For the second quarter, Cisco's net sales were up 16.5 per cent on last year to $9.8bn (£5.03bn) while net profit increased 7.2 per cent to $2.1bn.

For the whole first half of the year, sales were up 16.9 per cent on 2007 to $19.4bn, while profit rose 22.9 per cent to $4.3bn.

Cisco's share price dropped more than seven per cent in today's pre-market trading.

Chief executive John Chambers said: "This quarter was another solid quarter with good balanced results from a product, geographic and customer segment perspective. We are pleased with the growth on both the top and bottom lines."

Much has been made of the effect economic downturn and global recession might have on the IT industry, but Andy Buss, principal analyst at Canalys, counselled that a balanced overview is important.

He said: "Q2 expectations were very conservative. These results are subdued but not unexpected, and Cisco is still growing strongly.

"A lot of its growth is coming from acquisition. It is less susceptible to slow downs than some smaller vendors. These results leave Cisco and its partners in a healthy position.

"There is an economic downturn and things could go one way or the other, but steps are being taken to remedy that, such as the interest rate cuts in both the UK and the US. At the moment, the IT industry is still performing very strongly. "