Cisco Girds for Tough Economy in 2009

Shares of Cisco (CSCO Quote) were down in early trading Thursday as investors digested the tech bellwether's weak second-quarter outlook.

Although it met analysts' revenue estimates in its first-quarter results, Cisco reported flat profits and projected a second-quarter revenue dip between 5% and 10%. Analysts had estimated second-quarter revenue growth of around 6%.

Cisco shares were down 34 cents, or 1.96%, to $17.05 Thursday, as the Nasdaq fell 2.75%.

The networking giant is feeling the pain of the current economic crisis, noting a significant slowdown in tech spending during the last weeks of the quarter. Cisco cited shrinking enterprise and service provider budgets and an increasing economic uncertainty.

Against this backdrop, Cisco is preparing for a tough fiscal 2009. During a conference call late Wednesday, the company disclosed plans to cuts its expenses by $1 billion and realign another $500 million of its resources.

Clearly keen to grab the current crisis by the horns, Cisco CEO John Chambers outlined a six-point plan that includes a temporary hiring freeze, reductions in travel, and investment in the struggling U.S. market, which he predicts will be the first to recover from the economic downturn.

Despite those attempts to stabilize Cisco, one analyst predicts even tougher times ahead.

The third and fourth quarters of Cisco's fiscal 2009 could be "meaningfully worse," said Credit Suisse analyst Paul Silverstein in a note. Silverstein warns that enterprise IT and service provider budgets could be even lower than anticipated in 2009, with particularly tight spending in the first half of the year.