One on One with Cisco CEO John Chambers
Thursday, November 05, 2009
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SUSIE GHARIB: Shares of Cisco rose sharply today, up almost 3 percent on an upbeat forecast for tech spending. The network gear maker expects revenues in the current quarter to grow as much as 4 percent and CEO John Chambers says the recovery is quote gaining momentum. When I talked with Chambers today, I asked him to explain the trends he's seeing in tech spending.
JOHN CHAMBERS, CHAIRMAN & CEO, CISCO SYSTEMS: The first quarter of this year the calendar year we said it feels like the bottom. Second quarter of this calendar year we said it looks like there's a tipping point occurring starting up and this quarter was kind of the proof point. So we're in the early phases of the recovery, but our business parameters in terms of order rates, especially in the U.S. are all headed in the right way in a very strong quarter-over-quarter and year-over-year direction. GHARIB: John is this tech spending broad based or are things just good at Cisco?
CHAMBERS: I think it will be broad based, but it won't necessarily apply to all technology companies. It really speaks to many of the businesses and governments have done as much as they can on cutting expenses. They now need to think about how do you grow the top line or how do you deliver your services, not with just incremental costs to those. So now they are saying how do I really, what I want to look like as I come out of this economic slowdown. So those areas of technology that really tie to productivity -- health care, education, broadband build out I think will do very well over the next three to five years.
GHARIB: I know you talk to CEOs all the time who are your customers. Are they sounding more upbeat about economic conditions or and are they beginning to see that business is getting back to normal?
CHAMBERS: Well, back to normal would be too strong a statement. I think you will see most CEOs more optimistic the second half of this calendar year than they were the first half. And most of them believe that the recovery is starting. They will probably watch how this next quarter goes before they set the budget for next year. So that goes back to my comment earlier. While the trends are in the right way it is still fragile and still could come off course. But if I had to bet (inaudible) where we are as a company, acquiring four companies in the last month alone, we have got our foot off the brake. We got it on the gas pedal. We're hiring again. We're optimistic about the future but we're not naive that there are still bumps in the road that could get us off track.
GHARIB: You mentioned that the U.S. economic conditions are good. What about the rest of the world?
CHAMBERS: Well, the U.S. economic conditions are good but they are improving in the right way Susie if I can just put a little bit of balance on that. Our large customers just one quarter ago were decreasing their orders with us year over year by 20 percent. This quarter they increased it year-over-year by 10 percent. In terms of the rest of the world, I think China, India are picking up steam and doing a very good job. Latin America, it varies by country. Brazil doing pretty well. Mexico tied to the U.S., a little bit more challenging. Europe was perhaps the biggest surprise. I felt that Europe would lag behind the U.S. by at least two and maybe three quarters. We saw some good trends in northern Europe, southern Europe still kind of challenged.
GHARIB: Let me talk to you a little bit about competition. IBM and Hewlett-Packard used to be Cisco partners but not any more. As they try to catch this wave of tech spending, is that going to make things difficult for Cisco? Are we going to see a clash of the tech titans?
CHAMBERS: Susie, the exciting thing about what Cisco is doing is if you look down to the consumer level, we're competing against very good companies like Apple. Steve Jobs actually brought our flip product on stage the other day and said it is the first time he has ever done that and said here is a very good company, but we're going to beat them. That is a good compliment and a shot across the bow. You begin to think about where we are going in the data center. Clearly we'll be taking on some very good companies like at HP and an IBM. You begin to think about where we are going in traditional communications. You still got Alcatel, Lucent, Nortel, et cetera. We will not lack for competition in every area, Microsoft collaboration. But we're often viewed as a company, we move into a market. We usually become the number one player. We will see how successful we can be in these new markets. And candidly, the competition -- if you haven't got good competitors, you're probably not in a great market.
GHARIB: Real quickly John, your stock it up today. You also announced that you are buying back $10 billion of shares. What is the rationale behind that?
CHAMBERS: Well, if you really think about where we are going in the future and if we believe that our growth rates can be with the appropriate caveats 12 to 17 percent year-over-year ought to be our measurements. Our gross margins are improving which means our financial controllers are in very good shape. Then you are optimistic about the future of the company over the next five to 10 ears. If you believe that, you ought to be buying back your own stock and that helps your shareholders use the $35 billion in cash that we've accumulated and positioned ourselves well for this economic turn around.
GHARIB: All right, John, thank you so much, enjoyed talking to you.
CHAMBERS: Uh-huh, Susie it is fun as always. Thank you for having me on your show.
