MOUNTAIN VIEW, Calif. — Cisco Systems faces a precipitous decline in sales of its networking equipment, but John T. Chambers, the chief executive, is issuing one of the more optimistic forecasts from Silicon Valley — that the United States economy will recover this year.
According to Mr. Chambers, most of Cisco’s customers expect the economic downturn to linger well into 2010, while a smaller number expect the downturn to ease late this year.
In an interview after announcing the company’s second-quarter results Wednesday, Mr. Chambers said be believed things might get worse before they get better, but agreed with customers who foresaw better times sometime this year.
“The reason I am more optimistic than others is because you have $1.6 trillion coming in from governments around the world, with the U.S. accounting for about half of that,” Mr. Chambers said.
Like many major high-tech companies, Cisco, the largest maker of networking equipment, faces declining corporate spending. Growth in orders fell 9 percent in November, 11 percent in December and 20 percent in January. These declines prompted Cisco, based in San Jose, Calif., to forecast Wednesday that revenue for the current quarter will plummet as much as 20 percent compared with the $9.8 billion reported in the same period last year.
Cisco’s bleak assessment of corporate spending on technology could prove especially worrisome for investors. The company’s second quarter closed on Jan. 24, giving Wall Street the most up-to-date glimpse into customers’ spending patterns of any major technology company.
In addition, only 20 percent of Cisco’s sales come from regularly repeating deals, so Cisco must fight for 80 percent of its sales every quarter. This gives it better insight into current fluctuations in customer demand than many companies have.
Mr. Chambers’s optimism stems from the large amounts of government spending both here and abroad on infrastructure projects, including things like better broadband technology, health care and education, that should drive equipment sales. Mr. Chambers credited governments in the United States and abroad with relatively efficient action in enacting new infrastructure programs.
“The central banks around the world are working very aggressively to get that money into the marketplace,” he said.
During the conference call, Mr. Chambers, who says he is a Republican, also complimented the new president. “President Obama is off to a great start,” said Mr. Chambers. “I think his economic team is world class.”
Cisco plans to increase its investment in sales programs aimed at customers in America, China and India, viewing those countries as the first to increase their spending. It will then mount a second sales effort in Mexico, Brazil, Saudi Arabia and Russia, expecting business in those regions to pick up next.
Despite such optimism, Cisco must deal with some harsh immediate realities.
The company’s second-quarter net income tumbled 27 percent to $1.5 billion, or 32 cents a share, which compares with net income of $2.1 billion, or 38 cents a share, reported in the same period last year. Cisco beat the consensus forecast from analysts polled by Thomson Reuters of 30 cents. Revenue in the second quarter fell to $9.1 billion, or a drop of 7.5 percent from the $9.8 billion recorded a year earlier.
Seeking to save about $1 billion in costs this year, Cisco is considering laying off 1,500 to 2,000 of its 67,300 workers. Mr. Chambers hesitated to characterize this as a “broad-scale layoff,” which he defined as cutting at least 10 percent of a company’s work force. However, he added, larger layoffs remained a possibility if conditions worsened.
During the second quarter, Cisco amassed $3.2 billion in cash — one of the highest amounts in company history — leaving it with $29.5 billion. The majority of that cash remains overseas. Cisco could use its cash hoard to continue acquiring companies, placing an immediate emphasis on bolstering its consumer electronics business.
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