John Chambers said the company would continue a cost-cutting process that could result in a loss of 1,500 to 2,000 jobs.
* Sees Q3 rev down 15-20 pct, below expectations
* May cut 1,500-2,000 jobs but no plans for mass layoffs
* Fiscal Q2 revenue $9.1 bln, market expected $9.0 bln
* Q2 EPS ex-items $0.32, beats market's view of $0.30
* Shares down 4 pct on Q3 outlook
NEW YORK - Cisco Systems Inc Chief Executive John Chambers forecast a far sharper drop in current-quarter revenue than Wall Street had expected, and said the network equipment maker may cut up to 2,000 jobs as economic weakness spreads.
The forecast Wednesday pushed Cisco shares down 4 percent in after-hours trade, overshadowing its stronger-than-expected quarterly results. It also dragged down Nasdaq and Standard & Poor's 500 index futures, suggesting some turbulence could hit the tech sector Thursday.
Chambers told analysts on a conference call that he expects revenue in the current, fiscal third quarter to fall 15 percent to 20 percent from a year ago. That compared with the average analyst forecast for a 10.5 percent fall to $8.8 billion.
He said economic weakness had spread beyond the United States and Europe, with revenue from emerging markets falling 11 percent in the fiscal second quarter ended Jan. 24.
Low visibility in the current economic environment meant it was one of the most difficult periods in his career for making financial forecasts, Chambers said.
He said the company, which ended the quarter with more than 67,318 employees, would continue a cost-cutting process that could result in a loss of 1,500 to 2,000 jobs.
Chambers said Cisco was not considering mass layoffs at this time, but he warned that it may become necessary depending on the economy. The CEO said he considered job cuts of 10 percent of workers as a mass layoff.
Cisco's results and outlook are closely watched as an early indicator of changes in technology spending. The company is one of the first in the tech sector to report results that include most of January.
LONG-TERM GROWTH
Tighter credit and a hazy economic outlook has made it harder for companies to invest in big-ticket technology items such as Cisco's routers. A Cisco CRS-1, for example, costs around $500,000 to $1 million.
Cisco and other network equipment makers have said until recently that growing use of the Internet, particularly online video, would help shelter them from the recession.
But sluggish consumer spending has hit U.S. phone and cable service providers much harder than many had expected. Top U.S. phone companies AT&T Inc and Verizon Communications Inc have said they are trimming capital spending in 2009.
Net profit in Cisco's fiscal second quarter fell to $1.5 billion, or 26 cents per share, from $2.1 billion, or 33 cents a share. Profit excluding items fell to 32 cents a share from 38 cents, exceeding the market's average forecast of 30 cents a share according to Reuters Estimates.
Revenue fell 7.5 percent to $9.1 billion, the first year-on-year decline since 2003, as the economic downturn forced companies to cut back on technology spending.
Wall Street analysts on average had expected revenue of $9.0 billion, according to Reuters Estimates. In November, Cisco forecast a 5 to 10 percent year-on-year decline.
Chambers said that assuming the economy returned to a normal growth rate, Cisco was keeping its long-term target for annual revenue growth of 12 percent to 17 percent.
Cisco shares fell 4.4 percent to $15.14 in extended trade after closing at $15.84 in regular Nasdaq trade. Before the quarterly outlook, its shares had risen nearly 2 percent on the stronger-than-expected results. (Additional reporting by Sinead Carew and Robert MacMillan; editing by Richard Chang and Tiffany Wu) (ritsuko.ando@thomsonreuters.com; +1 646 223 6084; Reuters Messaging: ritsuko.ando.reuters.com@reuters.net)
resource: informationweek
