Cisco’s Latest Guidance Couches Hard Truths

In the technology industry, news is made every day. Some of the news is contrived, cooked up by PR flacks looking to create new realities for their clients, and some of it is firmly based in the realm of what most of us would call reality. The latter is what matters, but it’s not always easy to separate the wheat from the chaff.

When Cisco gives quarterly guidance on what it sees happening in the marketplace, we should pay close attention. This is real news, not puffery or fakery. Not only is Cisco a technology bellwether, but it also is the incontestable leader in providing the network infrastructure for IP-based communications involving data, voice, and video. Moreover, Cisco has customers all over the world, in every vertical market and in every geographic jurisdiction. The world’s IP-based applications typically ride atop Cisco networks.

Cisco’s first-quarter results were relatively good, but what it had to say about its business prospects in the second quarter and beyond was what took investors aback last night and this morning. CEO John Chambers and his executive team put the best possible spin on Cisco’s breadth and depth, both in terms of its product portfolio and with respect to its worldwide customer base, but Chambers’ comments about the US enterprise market being "lumpy" set off alarm bells.

Chambers can and will downplay the potential impact of slowing US enterprise sales — particularly in the battered financial sector, but also in manufacturing and retail — but everybody knows that the damage cannot be constrained to those markets, vertically or geographically. Downturns tend to be contagious, as the technology implosion of 2000 graphically demonstrated. They’re not so easily isolated, because markets, especially in an increasingly globalized world, and interrelated and interconnected. How is it possible for a severe downturn in the US financial sector not to affect other US industries, including telecommunications, or other nations’ financial sectors?

Cisco, of all technology vendors, should intimately understand the interconnectedness of the global economy. Through its networking infrastructure and communication technologies, Cisco has helped bring global interrelatedness to fruition. It has rode the wave to success and now it will suffer, at least somewhat, as the foundations of the global economy are brutally restructured in the months and perhaps years to come.

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