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Cisco CEO Chambers: 'We Got Surprised This Quarter'

CNBC.com
Thursday, 11 Nov 2010 | 11:36 AM ET

Cisco CEO John Chambers told CNBC Thursday that even he was surprised by the dismal revenue outlook that the networking giant issued late Wednesday, which sparked a selloff in Cisco's stock and the rest of the market.

John Chambers
CNBC
John Chambers

“We got a couple of air pockets here that surprised us, and I wish we were smarter on that," said Chambers said in a live interview.

Cisco's latest quarterly results, posted after the bell on Wednesday, included forecasts for quarterly and yearly revenue that fell far short of Wall Street expectations.

The news, which stunned investors hoping for proof of a recovery in technology spending, sent Cisco's stock plunging and triggered a selloff Thursday in tech shares and the overall market.

The outlook was a big disappointment for the world's top manufacturer of routers and switches, which is known for solid management and seen as a top beneficiary of the surge in global wireless and Internet traffic.

Chambers, one of the longest-serving CEOs in Silicon Valley whose views on economic trends are well regarded, told analysts Wednesday of "short-term challenges" in Europe and public sector spending, as well as weakness among its most important customer segment: service providers.

Cisco CEO on Earnings
Cisco trading sharply lower in pre-market, after dismal revenue outlook, with John Chambers, Cisco Systems chairman & CEO, and CNBC's Jon Fortt.

"Our service provider business in the U.S. had grown three quarters in a row in access of 20 percent, so we obviously did not anticipate because of the segment of the cable business being down at flat in terms of this quarter,” Chambers said on CNBC Thursday.

“Public spending probably should not have been a surprise to us," he added. "I think we all understand the pressures that governments are under around the world.”

When Chambers was asked whether investors should be worried that Cisco will be blindsided again in the fiscal third and forth quarter, he said “there’s always the possibility that something like that would happen.”

“Having said that, if you watch Cisco for the past 15 years almost all the projections we have made have been very, very accurate,” he said.

“We did get surprised in this quarter but we think it’s a couple of quarter phenomenon and we’re going to power through it," he added. "Will we hit some surprises in the short term? Yes we will, and we’ll adjust.”

“What I’m asking investors to do is to have confidence in what we do at Cisco,” said Chambers.

Simon Leopold, an analyst at Morgan Keegan said there were two markets that attributed to Cisco's weak outlook: "One was US cable TV, the other one was public sector. And that’s non-federal state and local governments. It’s not just the U.S,” he said on CNBC. (Watch Leopold's full interview here.)

Leopold said government agencies buy products from Cisco like ethernet switches and video conferencing devices. In the cable sector, Cisco purchased Scientific Atlanta in 2006—a set-top box company—which are used by cable companies, said Leopold.

"Set-top boxes are an area we have expected to weaken up because it’s a pretty saturated market. Consumers are fleeing to over-the-top providers like Hulu,” he said.

“We’re looking at that cable TV business falling off by roughly $250 million in our January estimates. So from about a billion dollars this quarter to maybe $750 million. That gives you an idea of the degree that business is hurting,” Leopold said.

—Reuters contributed to this report.

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