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.
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.
"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.
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.
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.