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UPDATE 1-Cisco CEO Chambers sees US recovery, emerging market challenges

Sinead Carew
Thursday, 12 Dec 2013 | 10:01 AM ET

(Adds details on service provider decline, share price update)

NEW YORK, Dec 12 (Reuters) - Cisco Systems Inc Chief Executive John Chambers said on Thursday he was beginning to see the U.S. market recover but cited challenges in emerging market economies such as Russia and Brazil.

While emerging markets were "extremely challenged" right now, he expects them to grow 6 percent to 10 percent when they recover, Chambers said at the company's financial analyst conference in New York.

For the U.S. market, Chambers cited strong growth prospects in the enterprise market, as its sales pipeline in that segment is up 20 percent. Enterprise customers account for about 23 percent of Cisco's overall revenue.

Cisco stunned the market on Nov. 13 by warning that revenue would fall as much as 10 percent this quarter and could keep declining for several quarters. The company blamed factors from emerging economy weakness and political backlash in China to company-specific problems, such as market-share losses in network equipment and declining sales in set-top boxes.

In response to some investors' requests ahead of the meeting for details on why Cisco's financial outlook was so weak, Chambers said it was largely due to broader market issues rather than Cisco-specific issues.

Aside from emerging markets, Cisco's biggest problem in the quarter was a 13-percent decline in sales to service providers, which represent about 31 percent of Cisco's overall revenue.

Chambers said the drop in demand from service providers included a 6 percent decline in sales of set-top boxes, a 2 percent decline relating to its launch of new products and a 2 percent decline due to a loss of market share in equipment used at the edge of operator networks.

Some investors were hoping Cisco would provide a detailed plan Thursday for the future of its set-top box business where it has decided to forego some sales of less profitable products.

Cisco shares, which have fallen more than 11 percent since the Nov. 13 warning, were down 43 cents, or 2 percent, at $20.44 in morning trading on Nasdaq.

(Editing by Bernadette Baum)

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