Cisco CEO: 'October did slow,' but innovation is coming

Businesses around the world now face "a very challenging environment," and the comeback from the financial crunch will start in the US, said the CEO of Cisco Systems, whose financial results included the bleak month of October.

"September was a bit bumpy, but had nothing that was a big surprise to us. October did slow, and we began to hear from customers on a global basis that their business was slowing as well," said Cisco CEO John Chambers, in delivering company financial results this week that he seemed to regard as somewhat of a litmus test for the world economy. (Our thanks to Seeking Alpha for the transcript.)

The current economic crisis began in the US, but financial recovery will start there, too, Chambers told financial analysts during a conference call held to report on Cisco's most recent results. While most technology companies recently reported on the months of July through September, Cisco is traditionally "one month behind our peers on announcements," Chambers noted.

Cisco's sales revenues for October 2008 showed a 9% drop from results for October 2007. The company expects its sales for November 2008 through January 2009 to fall 5% to 10% from the $9.8 billion reported for the same time period a year ago. Still, Cisco continues to keep to a long-term growth goal of 12% to 17%.

"We are seeing customers, not just in the financial, automotive or retail sectors, but across most of our enterprise industries facing what they view as a very challenging business environment," Chambers acknowledged.

"This started in the US. It then, in our opinion, expanded to Europe, then to [the] emerging market theater, and now to Asia," he said. "In our opinion, the US will be the first major country to recover."

Aside from Cisco's "off quarter" reporting schedule, Chambers pointed to other reasons why Cisco's results are a "good indicator" of economic trends.

"Cisco is [unique] compared to many of our peers in that approximately 84 percent of our business is non-recurring each quarter, and [this] therefore is a good indicator of new spending patterns," he contended.

"Also, our balance across all major geographic areas, four major customer segments, and over two dozen product families normally works to our advantage. But when you are the number one player in many of these categories and the slowdown has truly gone global across all of these industry segments, geographies and product families, we will be impacted."

But Chambers also expressed optimism that Cisco will continue to benefit from customers' technology investments and advancements going forward.

"The role of the network has changed dramatically and it's a value to our customers," he said. "You are starting [to see] the next wave of innovation, dealing with mobility, collaboration, green, smart grid, data center virtualization, video, small businesses, emerging new countries, et cetera."