Global reach helps Cisco post strong Q2 earnings

Cisco Systems has posted solid financial results for the second quarter to 26 January but the networking giant lowered its financial forecast for the months ahead, citing a slowdown in the US and Europe.

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Cisco Systems has posted solid financial results for the second quarter to 26 January but the networking giant lowered its financial forecast for the months ahead, citing a slowdown in the US and Europe.

The company's earnings were in line with financial expectations. Excluding charges, profits were $2.4bn (£1.2bn) on the back of $9.8bn (£5bn) revenues. Sales jumped 16.5% year on year.

As the world's largest router manufacturer Cisco has benefited from the growth of internet traffic over the past decade, and more recently from the flurry of investments in web 2.0.

But there have been signs recently that growth may be slowing in this area. Last week, Google alarmed Wall Street by falling slightly short of expectations, and worries of a US recession may have caused jitters in stock markets recently.

The next few quarters will be "extremely challenging", Cisco chief executive and chairman John Chambers said in a conference call with analysts, adding that his recent participation in the World Economic Forum in Davos only reinforced this perception. "We are seeing our US and European customers becoming increasingly cautious," he said.

The company saw sales growth drop off during January, and it is sharply lowering its financial guidance for the quarter. Cisco expects revenue to grow "approximately 10 %" year over year during the third quarter, Chambers said. Analysts had been expecting revenue growth in the 15% range, according to Thomson Financial.

Still, Chambers sounded some optimistic notes during the call. He said that he does not expect market conditions to deteriorate further, and added that lower valuations of technology companies could actually help Cisco, which made 11 acquisitions in 2007.

"It is our intent to expand our market share during this correction, as we have done in the past," he said. "We think we can gain more market share during the challenging time."

Growth in web 2.0 applications will drive overall growth for the next five to seven years, he predicted. More than 60% of the company's business now occurs outside of the US, he added.

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