Chambers terms US economy "very challenging"

NEW ORLEANS: The United States is presently in the midst of a capital

spending slowdown making the current economic environment "very,

challenging," said Cisco Systems Inc chief executive John Chambers on

Tuesday.

Chambers, whose firm is the largest computer networking company in the world,

said at a conference that the slowdown first began with service providers being

hit by high interest rates, which gradually spread to other business sectors.

"The capital spending slowdown started with the dip in spending by

service providers who in turn were affected by rising cost of capital and other

related factors. Spending (growth) in the US averaged double-digits every

quarter last year until the fourth quarter. In the fourth quarter it shrunk by

five per cent across all counts - software, hardware," Chambers said.

"Then you saw it occur in the manufacturing sector which in turn is a

sign of recession in the US economy. The Internet world has also been badly

affected and is showing signs of negative growth," he said. Cisco also felt

the effects of the slowdown in the last quarter, when it belied analysts'

earning expectations and fell short of revenue forecasts for the first time in

six years.

Before one-time items, the company earned $1.33 billion, or 18 cents a share,

which was a penny below the consensus estimate. Revenues totaled $6.75 billion,

below the $7 billion Wall Street had expected.

But, Chambers justified the dip in earning, by stating that Cisco had a large

market share making it inevitable for the company to face the effects of a

spending slowdown. "With nearly 53 per cent market share in the IT world,

any slowdown in spending is bound to have an impact on the company's

revenue," he said.

Though, Chambers refused to speculate on how long the slowdown would last,

company officials had recently predicted the condition to last for at least the

next two quarters.

(C) Reuters Limited 2001.