Cisco Systems offered a cautious business outlook Wednesday for its third quarter, adding to recession worries on Wall Street and leading technology stocks lower in late trading.
"I do think we are seeing a slowdown here," Chief Executive John Chambers said on a conference call discussing second-quarter earnings. "We are seeing our European and American customers becoming increasingly cautious."
Cisco forecast that its third-quarter revenue would grow 10 percent to about $9.75 billion, substantially below the $10.2 billion analysts had been anticipating. The outlook was being closely watched by technology investors as a measure of the health of the economy and the pace of technology product sales.
As a result, Cisco stock fell 7.4 percent, or $1.70, to $21.38 in after-hours trading. Other technology shares, including Hewlett-Packard, Intel, Juniper, Oracle and Sun Microsystems, slumped as well.
Cisco said business slowed in January as fears of an economic slump spread to corporate purchasing departments. The company's forecast assumed the subdued growth would continue over the next several months.
"We do think it will be relatively short-lived," said Chambers, who added that he would try to use a downturn to gain share on rivals.
Some analysts said the outlook was more pessimistic than they anticipated. "Toward the end of January, things came to a screeching halt," said Timothy Daubenspeck, an analyst at Pacific
Given that, "the 10 percent growth looks prudent for the April quarter," he said.
The quarter is the second in a row with a cautionary message from the company. Last quarter, Cisco sent its shares into a tailspin after reporting weak sales to large U.S. corporations and failing to raise its 2008 financial guidance, as investors had hoped. Since its shares reached a 52-week high of $34.24 on Nov. 6, a day before last quarter's report, they have slipped 37 percent.
Despite the cautious outlook, Cisco said second-quarter results met expectations. Net income rose 7 percent to $2.1 billion and sales climbed 16.5 percent to $9.8 billion.
Analysts had been looking for $9.79 billion in revenue and earnings of 38 cents a share, excluding one-time charges, which Cisco matched.
The company said sales of its flagship router product lines grew a solid 18 percent while its switching business expanded 11 percent. Its advanced technology group grew a faster 25 percent.
"If the market does continue to slow, we believe it will not change our long-term market opportunities" of capitalizing on the growth of video and Web 2.0 applications on the Internet, Chambers said.