Cisco Conference Call Comments: Man Down! (CSCO)

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We listened to the Cisco Systems Inc. (NASDAQ: CSCO) conference call, and John Chambers is sounding out the agony of defeat after his comments.  He has forecast a very somber sounding opinion essentially calling the recent weeks the most challenging of his career.   The sad part is that when managers get this somber, you have to expect it to last a while.  Below are the rest of the comments.

Chambers said that there was a sharp 9% decrease in orders in October,which is dismal.  And it seems as though it is going to get worse.  Henow expects a drop of -5% to -10% in Q2 rather than the projectedgrowth the street was looking for.  If we overlay that we get a rangeof revenues of roughly $8.6 to $9.07 billion.  First Call hasestimates at $10.41 billion.

There was a garbled connection on the conference call, so it is possible that this was a sequential number and that would make it less bad in revenues.  But less bad is still pretty dismal.

While we warned you ahead of time that analysts were still being waytoo optimistic in our earnings preview, this is one of the guidancecomments which is almost NEVER a one quarter event.

Chambers also said he believes that the U.S. will be the first countryto recover from the global downturn, which means that the growth inemerging markets may be off of the table for some time.  The companydoes believe that long-term it can eventually get back to 12% to 17%growth.  We think this currently sounds too optimistic considering thecurrent mood and outlook.

The company is also forecasting a cap-ex cut for 2009 of roughly $1 billion and sees gross margin around 64%.

Shares closed down 5% at $17.39 in regular trading, but shares are down5% more to $16.54 in after-hours trading after the conference callcomments.

Jon C. Ogg
November 5, 2008