Cisco Warns of 'Mixed Signals' in the IT Market

Cisco Systems reported record numbers in its fiscal 2010 fourth-quarter earnings call Aug. 11, including $10.8 billion in revenue and $1.9 billion in income.

However, despite the lofty financial numbers, CEO John Chambers talked about the “mixed signals” he was getting from customers and the economy in general, comments that some analysts wondered whether they indicated a possible slowdown in the recovery in the IT industry.

The gist of Chambers’ comments were that while most enterprise executives expect the recovery to continue, it would be a much slower pace than expected, around 2 percent for the rest of the year.

“The economy continues to be the wild card in many of our customers’ minds,” Chambers said on a conference call with analysts and journalists.

He cautioned that he was not making predictions regarding the economy, only making observations on the feedback he was getting from both customers and the federal government, noting comments from the Federal Reserve this week that the recovery appeared to be slowing.

Chambers also predicted first-quarter 2011 revenues to grow 18 to 20 percent over the same period last year, but that came in below analyst expectations.

Even the record revenues for the quarter, at $10.8 billion and 27 percent over the same quarter in 2009, were a bit below analyst expectations of $10.9 billion.

Business during the first five or six weeks of the fourth quarter was strong, but sales dipped in the last part of June and into the first two weeks of July, he said, noting that the time period coincided with continued fears over the debt crisis in Europe. However, the final two weeks in July were again very strong, he said.

Chambers said he normally would not have given the numbers—or the rollercoaster trend in the quarter—a second thought, except for the growing number of comments from customers worried about the state of the recovery.

“Many of our customers believe the economy is going to grow, just very slowly,” he said, adding that what startled him was “how quickly some people took their foot off the gas pedal, and how quickly they put it back down.”

The signals Cisco is getting from both the market and customers are creating what Chambers called “unusual uncertainty” in the economy.

“I’ve probably had the toughest time reading [the economic signals] than I’ve ever had before,” he said.

Still, despite those economic mixed signals, Cisco saw revenue growth throughout most product lines, including about 12 percent in switching, 4 percent in routers, 20 percent in unified communications, 30 percent in wireless and 90 percent in UCS (Unified Computing System), where Chambers said Cisco now has about 1,700 customers.

He also said Cisco was intent on continuing to hire new employees. The company plans to add another 2,000 people over the next few months, he said, which will bring the total number of workers to more than 72,000.

Chambers also was confident in Cisco's ability to expand in such high-growth sectors as virtualization, cloud computing and data center solutions.