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Cisco's solid quarter and recession-survival lessons

But future is hard to see

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Tech giant Cisco posted solid results for its first quarter ended 25 October 2008 and remains confident of hitting targets for the full year despite difficult conditions.

Revenues were up 8 per cent to $10.3bn compared to the same period last year. Net income was $2.2bn, flat on last year. Earnings per share were 37 cents, up from 35 cents last year. The company has just under $27bn in cash and investments.

Cisco's chairman and CEO John Chambers said the company remained confident it could hit growth targets of between 12 and 17 per cent, "assuming the global economy returns to normal growth rates.". He said that given the uncertainties it was very difficult to make accurate forecasts.

Chambers warned: "all of us are seeing the same financial and global economic challenges that have occurred over this last quarter, especially in the month of October."

He said Cisco would follow its "playbook" learnt from previous downturns. This provides four guidelines to survival - first determine if problems relate to your strategy or the macro-environment. Secondly work out how long and deep the downturn will be and adjust strategy accordingly. Thirdly businesses should start preparing for the upturn and look for ways to benefit from it more than your competitors. Finally use the dip to build better relationships with existing customers.

In practical terms this will lead Cisco to invest in the US in the belief that it will start emerging from recession first while China and India are best-placed to suffer the least from the downturn.

Chambers said: "Over 70% of our business comes from the US and western Europe today. Both experienced negative year over year order growth in Q1. 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. This started in the US, it then in our opinion, expanded to Europe, then to emerging market theater, and now to Asia."

Cisco provides kit from "device to data centre" and growth varied widely. Switch and router business grew by 8 per cent and 1 per cent while service business increased 10 per cent. Network home sales fell 2 per cent but wireless grew 22 per cent.

Press release is here and the call transcript is here. ®

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