Chambers: 'Cautiously Optimistic' Outlook For Second Half

Cisco Systems

"Layoffs are down, so I'm cautiously optimistic," Chambers told the company's solution providers here in Orlando.

While Chambers said he originally anticipated consolidation in the market as a result of the economy, he now believes some SMBs could go out of business. "High tech has not been through cyclical ups and downs, as have other industries," he said. "In these times, you need to size the organization appropriately and get ready for the recovery. You need to focus on what you can control."

Chambers continued: "In this market, you lose or gain rapidly, and it is how you catch" the product transitions and the changes in customer values that will make or break a company's success.

Solution providers must continue justifying technology investments to executives, not just IT departments, in order to seal deals in an economy that is still uncertain, Chambers added. "CEOs and CIOs get it, but it is a 'show-me' economy," he said.

Businesses will be ready to spend again when their own revenue starts growing, he said, expressing optimism because of the productivity gains that can be achieved with technology.

Chambers predicted that within the next decade, corporate productivity will grow between 5 percent and 10 percent. Cisco's own Web-based applications have helped to increase the company's productivity and saved the company money, he said.

While Chambers said he had expected the strongest gains from Cisco's Web-based system to come in the first years of the implementation, instead the gains accelerated over the past several years when Cisco was able to fine-tune that infrastructure and add capabilities.

That supply chain infrastructure, for instance, saved Cisco $12 million to $14 million from 1994 to 1996, $75 million from 1997 to 2000, and $284 million in 2001, said Chambers.

Nevertheless, the market "is ugly," he said. Last year was a humbling experience, Chambers said, referring to a year which Cisco went from 70 percent growth to "negative 35 percent" growth within the span of 45 days. "I thought this was mathematically impossible," he said.

Cisco's current growth rate of 2 percent may not seem exciting compared to the past, but Chambers pointed out that Cisco's primary competitors are posting "negative 38 percent" growth rates. Therefore, Cisco is growing 40 percent faster than its competitors, Chambers said.