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Cisco orders drop 20% in January

TECHNOLOGY bellwether Cisco Systems Inc said on Wednesday that incoming orders declined dramatically in January, indicating the shrinking economy has more pain in store for the industry.

Chief Executive John Chambers said the company, the world's largest maker of computer networking gear, saw fewer and fewer orders as its latest quarter progressed. In November, orders were down 9 percent from the year before. In January, the drop was 20 percent.

"That was a bit of a shock," said analyst Erik Suppiger at Signal Hill Capital Group.

Cisco's fiscal second quarter ended on January 24, nearly a month after other technology companies that have reported their quarterly results recently. That means Cisco's results provide a window into future reports from the rest of the industry. Cisco is also sensitive to trends in the market because more than 80 percent of its revenue is from sales, rather than recurring service contracts.

Chambers projected a 15 percent to 20 percent drop in revenue in the current quarter. That would put revenue at US$7.8 billion to US$8.3 billion, below the average estimate of US$8.7 billion projected by analysts polled by Thomson Reuters.

Shares in Cisco fell 71 cents, or 4.5 percent, to US$15.13 in extended trading after Chamber's comments.

The decline in orders was worldwide, though Europe and Japan had a better appetite than the United States and emerging markets.

Switches and routers, Cisco's core products, saw the biggest declines. Revenue grew from services and some new businesses such as video conferencing.

As expected, the public sector was a bright spot, with orders up around 5 percent. Telecommunications service providers, meanwhile, cut orders by about 20 percent.

For the just-ended quarter, sales were US$9.1 billion, down 7.5 percent from a year ago. The company announced at the start of the quarter that it would cut back on discretionary expenses and freeze hiring.

But it wasn't able to slash expenses as quickly as sales fell and its profit dropped 27 percent to US$1.5 billion, or 26 cents per share, from US$2.1 billion, or 33 cents per share, a year ago.



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