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Cisco CEO Upbeat on Outlook Despite Drop in Shares

John Chambers, chief executive of network equipment maker Cisco Systems, told CNBC he remains upbeat about his company's outlook, despite disappointment among some investors.

Cisco Systems
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Cisco Systems

Cisco shares fell sharply on Thursday, even as the tech bellwhether reported a 37 percent increase in earnings and reaffirmed its fiscal second-quarter outlook.

In an interview on CNBC Thursday morning, Chambers called the most recent period a "very, very good quarter."

"We were above expectations both on revenue growth...and on earnings per share, and projections for the next quarter were at the high end of our guidance...and so we're very pleased with where we are," he said.

However, investors were focusing instead on the company's comments during a conference call regarding its customers in the US financial and auto sectors. Chambers said he expected US enterprise business to be "lumpy," and he saw "dramatic decreases" in orders from US financial institutions and auto companies in the last quarter.

These comments stoked concerns that the recent credit market turmoil is leaking into other parts of the economy and putting a damper on business spending in the US.

"It shouldn't come as a surprise to any of us that banks are cutting back on their IT spending," he told CNBC on Thursday. "Probably, the automotive companies are as well, given the challenges they face, but the important issue here is, that occurred, and our growth was still above industry analysts' expectations, and we forecast very good growth next quarter."

While Chambers said he was still optimistic about growth in emerging markets, he reiterated Cisco's revenue outlook for fiscal 2008, disappointing some investors who had hoped for an increase.

Cisco, which makes routers, switches and other equipment, said quarterly profit rose to $2.2 billion, or 35 cents per share, from $1.6 billion, or 26 cents per share, in the same period a year earlier.

Revenue, helped by Cisco's expansion into new products as well as emerging markets, rose 16.7 percent to $9.6 billion for the quarter ended Oct. 27. The company's August forecast was for revenue of $9.45 billion to $9.55 billion.

Analysts on average had forecast revenue of $9.5 billion, according to Reuters Estimates.

"The revenues are right in line with expectations. As usual the earnings beat by a penny. There does not look to be upside at this point," said Kenneth Muth, an analyst at Robert W. Baird.

He said revenue from routers used by phone and cable service providers was about 3 percent ahead of his forecast but revenue from network switches, used in corporate networks, missed his estimate by about 4 percent.

"There might have been some slowdown in some of the enterprise categories," he said, noting that switches make up Cisco's biggest business, contributing 34 percent of revenue.

Chambers said he expected revenue growth to remain at 16 percent year-on-year in the current quarter, and reiterated that full-year growth would be in the 13 to 16 percent range.

That compared with the average analyst forecast for fiscal 2008 revenue growth of 15.8 percent, according to Reuters Estimates.

Cisco is the world's top maker of routers and other network equipment, and has been expanding into video conferencing and new Web-based software through acquisitions of small start-ups. It also owns cable set-top box maker Scientific Atlanta.

The company has been expanding its overseas business, investing aggressively in fast-growing markets like China and India.

The shares had risen around 20 percent since the start of the year on expectations that growing Internet traffic, fueled by the popularity of Web-based video and music services, will keep driving sales of Cisco equipment.

-- Reuters contributed to this article.

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