Cisco CEO Chambers: Company Will Invest During Economic Slowdown

John Chambers said Cisco will continue to invest in emerging markets, even as regions like the United States and Europe cut IT spending due to economic problems.

Cisco Systems will look to increase investments€”including in emerging markets€”and grow market share in key sectors despite the uncertain global economy, according to Chairman and CEO John Chambers.

The networking giant this week showed off some of that investment, announcing June 20 an expansion of a year-old program in Israel called Maantech that Chambers said will create 12,000 high-tech jobs for Arabs in Israel over the next four years and hopefully close the economic gap between that country€™s Arabs and Jews.

In a taped interview with CNBC from the International Economic Forum in Russia, Chambers said such investments were important to Cisco€™s efforts to become a larger IT solutions player, and also part of the company€™s efforts to grow at a time when competitors may be considering cutting costs due to the troubled economies in places like Europe, India and the United States.

Chambers argued that companies can grow market share in down economies or right when things begin to start on the upswing, and that €œwhen we see things starting to slow in an area, that's actually when we may invest more aggressively.€

"We see the emerging economies not only as being able to grow two to three times faster than our traditional business, but we see them as an opportunity for us to begin to talk about, how do you change the whole economy,€ he said in the CNBC interview. €œInstead of selling routers and switches€”which I love to do€”you suddenly say, €œHow can we do job creation? How do you do inclusion of the entire population? How do you change health care?€™"

Emerging markets will continue to be important, Chambers said. About 20 percent of the company€™s revenue comes from such regions, and at the current trajectory, that should grow to about 30 percent soon, he said. Cisco has been investing in Russia for the past three years, Palestine for four and China for 10, according to Chambers. During that time, the company€™s business in Russia has grown 50 percent, and in the early part of this year, that growth has continued in the €œhigh teens.€

For its part, China is looking to use IT to improve its health care and educational systems, he said.

What this means for Cisco is more business and greater market share growth, all helping fuel a transformation in the company, Chambers said.

€œOur role should change from being a, quote, telecommunications company to potentially€”and it€™s a stretch to get there€”to be the top IT company who helps them solve their goals,€ he said.

Chambers in the past has talked about investment during down economies. During the global recession several years ago, Cisco aggressively looked to expand into almost three-dozen new markets, such as consumer technologies. However, the company last year drastically scaled back those efforts in a restructuring that included about 3,000 job cuts and closures of underperforming businesses, including many of their consumer products. Instead, Cisco is focusing on five priorities, including cloud, core routing and switching, and the data center.

The move has worked, Chambers said. Market share in routers€”which was falling before the restructuring€”is up 7 percentage points, and Cisco has more than 70 percent share in the switching market. The company also is seeing growth in markets such as data center technology and set-top boxes.

Emerging markets will be keys to continuing the growth, he said, and also will help lessen any blows the company might feel from problems in other regions, particularly developed markets like Europe and the United States, where governments are cutting back on IT spending as they try to work their way out of severe budget problems.

Chambers said reductions in IT spending will hamper these countries€™ abilities to improve in such areas as health care, education, security and defense, and could make recovery even more difficult.

€œI would argue that governments around the world, if they don't invest in IT, aren't going to be able to work their way out of this," he said. €œI think developed countries will have to change.€