Cisco Reports Revenue Decline, Predicts Stabilization

"They are finally beginning to have something reasonably solid under their feet," Chambers said during Cisco's third quarter earnings call on Wednesday.

Cisco saw revenue plunge 16.6 percent year over year from $9.8 billion to $8.2 billion. And the rocky third quarter has prompted the San Jose, Calif.-based networking giant to chop its fourth quarter guidance. Chambers predicted Cisco's fourth quarter revenue will plummet 17 percent to 20 percent year over year.

Cisco posted a profit of $1.3 billion, down from $1.8 billion, or 24 percent, in the same quarter last year.

And while customers are seeing the market start to stabilize for the first time in several quarters, Chambers still called the global economic crisis "the most challenging of times." Chambers said perceived stabilization in no way indicates that an upturn is imminent. Instead, he said it's a positive first step in a gradual process.

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"It has to level out before it gets better, we'll see," he said, adding that he is not predicting an immediate upturn. "I don't want to read too much or too little into it it feels a fair amount better than just a quarter ago."

Cisco's continued revenue decline, the second in as many quarters, was prompted by a sweeping halt in IT and networking spending, which forced Cisco's overall product revenue to dip 22 percent year over year to $6.4 billion.

In all standard networking categories, Cisco's revenue faltered. Revenue from routers dropped 32 percent to $1.4 billion, switch revenue slipped 20 percent to $2.6 billion and advanced technologies revenue fell 12 percent to $2.1 billion. Revenue from all geographies faltered as well, with U.S. revenue hitting $4.3 billion, down 15 percent.

While revenue on networking gear plummeted, Cisco's services revenue climbed, rising 9 percent to $1.7 billion in the third quarter.

Despite the revenue drop, Chambers called the third quarter "solid" and remained confident that myriad new product offerings, driven by its Unified Computing System data center solution, and a handful of key acquisitions, including Tidal Software and Flip camcorder maker Pure Digital, will help Cisco pull out of the slump and regain traction in a market fickle about spending.

And Chambers said a weak third quarter performance and a bleak fourth quarter prediction won't thwart acquisitions or innovation.

"You will continue to see us invest aggressively," Chambers said.

Chambers said Cisco's move away from pushing traditional networking gear will also help it wade through murky economic waters. Chambers said Cisco is banking heavily on virtualization, collaboration, Web 2.0 and video solutions to break out of the continuing revenue slump.

"Our vision of how the industry is going to evolve is playing out as we expect," Chambers said.

Regardless of Chambers calling the third quarter the first to "follow normalcy" in terms of orders and sales, he said Cisco is still aggressively working to cut costs. Chambers said Cisco is close to exceeding its initial move to cut its run rate by $1 billion annually and on target for hitting a $1.5 billion spending decrease.

Chambers also cautioned that layoffs could be necessary, but added that it appears broad layoffs and salary reductions are avoidable. However, Cisco said on Wednesday that job reductions will hit the high end of the 1,500 to 2,000 cuts the company announced on its second quarter earnings call in February.