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Cisco still unclear on health of economy

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CIOL Bureau
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SCOTTSDALE: Communications equipment maker Cisco Systems Inc. said on Tuesday

the prospects for growth in the economy and industry were unclear, but it still

expects to expand its market share and make several small acquisitions to fill

in gaps in its product portfolio.

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Cisco, which makes gear that powers the Internet, said the US market is

"still struggling", but it has seen some strength in Europe. Asia has

had a mixed performance, with China feeling some of the "stress" from

the US economic downturn. Japan will likely see three to five years of

"challenging times", it said.

"I'd like to say I knew where the economy is going ... but there's still

limited visibility," Cisco Chief Executive John Chambers said at the

Salomon Smith Barney 12th annual Entertainment, Media and Telecommunications

Conference in Scottsdale, Arizona.

"Visibility is still limited, and it is so with most of my

customers," Chambers said. "Customers are saying 'We're planning

conservatively and acting accordingly.' Cisco had seen stable product orders

from June through September and that continued through the end of December,

Chambers said.

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"We'd been booking linearly and that continued again in November and

December," Chambers said Tuesday. Linearity refers to the smoothness of

incoming orders, which allows companies to run their businesses with more

predictability and ultimately more profitably.

Chambers said he sensed a palpable feeling of negativity throughout the

equipment market and among customers in January 2000, but the environment today

was less worrisome.

Cisco and other equipment makers suffered last year as corporate customers

delayed or canceled technology purchases and telecommunications companies

slashed their capital spending budgets in the economic downturn. "This year

is a little different. (Customers') budgets are set conservatively, with the

flexibility to go up," he said.

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Cisco said last month it was optimistic the downturn had ended, but

ultimately time would determine whether order stability the company had seen

indicated that a rebound was near.

Chambers declined to comment specifically on the health of Cisco's business

in the fiscal second quarter, which ends on Jan. 26, but he expected the company

to gain "dramatic market share." The company has promised that market

share gains would not come at the expense of profit margins.

"We're growing ahead of the market and gaining market share on almost

all major competitors," Chambers said. "We've focused the whole

company on profit contribution. We used to focus on revenue growth. Now we're

really focused on profits," he said.

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Cisco, which has more than $19 billion in cash, reiterated it would likely

make eight to 12 small acquisitions this year, using a combination of cash and

stock, to add products or services to its portfolio that its customers crave,

Chambers said. The acquisition targets will, "depend on what customers

want," he said.

The company will likely expand its presence in the storage business, but will

likely grow on its own or through a partnership rather than an acquisition.

Cisco also may expand its consulting services, but it will limit its role to

providing only specialized, high-end services, he said.

(C) Reuters Limited.

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