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Cisco CEO 'Underestimated' Slowdown in Some Markets

A fountain is shown at the entrance to Cisco Systems headquarters in San Jose, California.
Paul Sakuma
A fountain is shown at the entrance to Cisco Systems headquarters in San Jose, California.

Cisco Systems Chairman and CEO John Chambers told CNBC Thursday that he "underestimated" the slowdown in several of the computer networking company's businesses, which caused Cisco to lower its quarterly outlook.

Cisco's stock plunged Thursday, a day after the company reported solid fiscal third-quarter earnings but gave a weak fourth-quarter outlook due to restructuring costs and lower sales in its public-sector and switching businesses.

In a live interview, Chambers said he "underestimated what would happen in terms of growth and didn’t see what would happen" in those businesses, although he noted the public-sector business alone fell from 30% growth to minus 8% over the last five quarters.

The company is preparing a round of layoffs around the world, aiming to cut annual expenses by $1 billion, Chambers said. He said the engineering and sales areas were being consolidated and the consumer division—including the Flip video camera business—has been closed.

He also said the complex decision-making system that created 47 boards and 12 councils was being slashed to cut expenses and make the company more nimble.

The system had grown too complicated, he said, but it was needed in 2009 to fuel the company's expansion into video, cloud computing and other types of networks.

"If we stayed just a routing and switching company our limitation as to margin and growth would be very limited," Chambers said.

Chambers ruled out splitting Cisco into three companies—an access business, an enterprise routing and switching business, and a service provider routing and switching business—to lift its stock price, as a Morgan Stanley analyst has suggested.

"We are focused on full value for our shareholders. We have to earn that one quarter at a time," Chambers said, and de-merging wouldn't do that.