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Cisco CEO: What, me worry?

John Chambers says Cisco Systems is prepared to "break away" from its latest batch of high-end competitors, much like it has in other businesses.

SAN JOSE, Calif.--Shrugging off signs of a slowdown in the networking market, Cisco Systems chief executive John Chambers said Monday the company is prepared to "break away" from its competitors, much like it has in other businesses.

Whether that is a realistic expectation or not, Chambers' timing is significant given the myriad challenges facing his company and the industry as a whole.

The bold statements, made to an annual gathering of financial analysts Monday, come amid signs of a slowdown in the networking industry. Capital spending is expected to experience sluggish growth next year, start-up telecommunications companies are facing a financial squeeze, and some competitors are reporting signs of weakness in various markets.

"There's always going to be lots of competition, but this is the first time I've been able to say we can get a clean break" against Cisco's rivals, Chambers said.

Cisco executives also stressed there is no change to previous guidance concerning the company's fiscal second-quarter and annual projections; the company expects to grow sales between 50 percent and 60 percent.

Cisco has seen increased competition from smaller companies such as Juniper Networks, Sycamore Networks and Foundry Networks, as well as from larger players such as Nortel Networks, Ciena and Alcatel. Meanwhile, once-formidable foe Lucent Technologies has been entrenched in fiscal woes, strategic missteps, and executive turmoil in the same period.

But Chambers, ever the optimist, said that despite some short-term successes by his company's rivals, Cisco can gain market share over the next 12 to 24 months, particularly in its fast-growing service provider line of business. That market pits Cisco against telecom equipment stalwarts, such as Nortel, and has long been viewed as Cisco's greatest technology and competitive challenge as it expands from its roots in selling network routers to corporations.

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Cisco CEO reassures investors
John Chambers, CEO, Cisco Systems

Chambers also suggested Cisco was better positioned to handle a downturn in the runaway economic fortunes of the United States and could actually benefit from an ongoing malaise on Wall Street, which he said would make it easier for the company to continue its acquisition strategy.

"We do better in the tough transitions," Chambers said.

In a question-and-answer session following Chambers' presentation to analysts, the chief executive also said the company would reinvigorate its marketing efforts in the coming months in response to competitors. "You're going to see us get much more direct," Chambers said.

Furthermore, he said financial woes afflicting telecommunications companies such as PSINet and Covad Communications would hurt others more than Cisco. "We are not immune to capital spending decreases, but we won't be as affected as our competitors."


Meta Group says Cisco has a dominant share of enterprise networking and a strong position in exactly the part of the carrier area that the major carriers must keep growing.

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Chambers also said he is not concerned about the tepid performance of Cisco's stock in recent months, claiming he retains a long-term view of his company's stock performance and attempts to stress that to employees as well.

At market close, Cisco shares were down $2.69 to $45.81. They have traded as high as $82 in the past year and are down about 14 percent since the beginning of the year.

Others are more concerned about the state of Cisco. Paul Johnson, analyst with investment bank Robertson Stephens says the company has several challenges ahead of it, exemplified by the growing list of smaller competitors nipping at its heels. He said in a recent report that Cisco, along with competitors Nortel and Lucent, are the "gorillas of yesteryear."

Johnson said in an interview he finds it "disturbing" that Cisco has lost the performance game, for example, in the area of high-end routing, where Juniper continues to gain market share in a niche Cisco once dominated. Juniper "is the first company in 10 years to consistently take market share from Cisco. Very impressive," he said.

He also said some of Cisco's recent acquisitions have not gone as well as those of the past--a sign the company has grown too big to digest acquisitions effectively. Couple that with a doubling of the company's work force over the past 12 to 18 months, signs of slow reactions to changing markets, and increased internal bureaucracy, and you get, according to Johnson: "Big company-itis."