Cisco Says Outlook Is Murkier

Cisco (CSCO Quote) CEO John Chambers, in a dramatic turnabout, says his business' visibility is suddenly less clear, and he urged investors at a Morgan Stanley Dean Witter conference Wednesday to prepare for a less predictable growth rate within the 30% to 50% range in the near term.

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Chambers declined to comment on the financial outlook for Cisco this quarter or for the fiscal year, but he said that business wasn't quite as rosy as the picture he painted last month. Analysts had expected Cisco's growth to fall within the range of 56% to 65% for the fiscal year, which ends in July, according to First Call/Thomson Financial.

This quarter, which ends later this month, was "more of a challenge than I thought it would be six weeks ago," said Chambers.

The change of tone -- and for Cisco admitting a quarter was challenging is a significant change of tone -- gave investors a heck of a fright Wednesday. Cisco shares were recently down $3.06, or 8.3%, to $34.06.

Investors have been in a high stage of alert on rumors that Cisco would preannounce lower-than-expected sales and profit figures for the quarter. In attempting to diffuse the tension, Chambers came somewhat clean on the impact the telecom spending slowdown was having on his company and the overriding economic cooling that has gripped tech stocks.

Only last month Cisco hosted a two-day analyst conference that attempted to give investors the impression that the company wasn't feeling the cash crunch its customers were suffering. Skeptics said Chambers was pointing skyward while rushing headlong off a cliff.

It looks like that cliff has at least come into view, though Chambers said Cisco has proven to be a tough competitor in times of trouble. To illustrate his point, Chambers said Cisco was able to foresee the collapse of the Asian market two years ago and plan accordingly. During that time, he says Cisco's sales growth was 42% in Asia while his competitors experienced growth half that size.

Now Cisco gets to try to be that nimble on the home front.