Five Key Points from Cisco's FQ209 Conference Call

by: Judy Weil

From Cisco Systems, Inc. FQ209 conference call: (NASDAQ:CSCO)

When all else is declining, social networking and viral computing are rising:

The areas that I consider the most interesting at this point in time is how quickly collaboration enabled by Web 2.0 is spreading across all Cisco functions in viral form with a very rapid take up.

The utilization of the collaboration enabled by WebX is up by 3,100%. TotalPresence meetings as I said earlier are averaging 4,000 a week which enables not only new business models but also new reductions in our travel expenses from a run rate of $750 million to the current run rate of approximately $350 million. Discussion forums are up approximately 1,600%. Cisco C-Vision, our internal version of You Tube is up 2,300%. All of these together are leading our networks even in today’s challenging times at a growth rate of over 400% which obviously requires additional routers and switches to support the network demand.

Banking on the U.S. coming out of the downturn first:

We intend to invest aggressively in two geographic categories; the U.S. and selected emerging countries. In our opinion the U.S. will be the first major country to recover.

Q: Are you seeing anything in the U.S. market that leads you to believe or that makes you more comfortable that is going to turn first?

A: The response that the government is doing… their stimulus and their investment. A large part of that is going to be when consumers aren’t spending and business isn’t spending it has got to be government. A large part of those areas I think will be in the infrastructure, smart digital highways, the capability to do healthcare and education differently.

Cisco sees that governments everywhere are the best clients:

In terms of our overall customer segment business the public sector was a bright spot across all geographic markets. Total public sector order growth was in the mid single digits and four of the five theaters had positive public sector growth. Enterprise and service provider were both down approximately 20% in terms of orders on a global basis. The commercial market was down in the high single digits from an orders perspective in Q2.

As seen globally:

Japan order growth was down year-over-year in Q2 by approximately 4%. Public sector had a very strong quarter with growth of over 30%.

Germany was a very bright spot in Europe with growth in the high teens while the U.K. and Italy both had a very tough quarter with order growth down over 20%.

Asia Pacific order growth was down 12% year-over-year. Specifically, China was down in the low single digits and India was down approximately 30% year-over-year. Public sector had order growth of 3% in Asia Pacific… U.S. orders in Q2 were down approximately 18% year-over-year. Public sector growth was in the mid single digits… Emerging markets were down by 23% year-over-year.

Emerging markets: China and India will recover first:

China and India will be in our first wave. We will continue to invest in the downturn. Just as we needed to prioritize in our market adjacencies we need to do so in emerging markets. There will be a second wave of emerging countries that we will focus on including Mexico, Brazil, Saudi Arabia and Russia and a third wave of approximately two dozen select countries out of the more than 100 emerging countries where we do business.

Over time we expect the majority of the world’s GDP growth will come from emerging countries.

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