Cisco CEO: Hope for IT spending

At NetWorld+Interop, John Chambers contradicts industry wisdom to predict that when the economy improves, companies will buy IT gear to boost productivity before they hire new staff.

2 min read
LAS VEGAS--Cisco CEO John Chambers is willing to bet that once the economy improves, companies will buy new technology gear before they hire new employees.

"They will spend on IT as it relates to productivity," Chambers said Tuesday in a keynote speech at the NetWorld+Interop trade show here.

However, Chambers concedes that his is not necessarily a majority view, with many high-tech leaders predicting that technology spending will lag behind any recovery in the economy.

Within the past year, Cisco has been shifting its research largely into technologies that will debut in the next one to three years, according to Chambers.

From its pending purchase of Linksys, which marks its entry into the home wireless market, to its new 802.11b phone, Cisco has identified 13 new business areas that each stand to contribute $1 billion or so to Cisco's sales, Chambers said.

Some of those areas, such as making switches for storage networks, have only recently started to result in sales. The Cisco CEO said the company earned just less than $10 million in revenue last quarter from storage--the first quarter that its storage switch was on the market. That figure could easily double each quarter for the next several quarters, he added.

The continued growth in technology spending will come from industries that have not yet realized significant productivity gains from the Internet, Chambers predicted, pointing to sectors such as construction, government and manufacturing.

"Technology for technology's sake is not only on the back burner, it's off the stove," he said.

David Wu, a financial analyst at Wedbush Morgan, said he did not disagree with Chambers' contention that companies will invest in technology before hiring new workers, but that the problem is that companies are usually slow to recognize an improvement in the economy. "It usually takes two quarters," Wu said.

Chambers also used Tuesday's speech to rail against a movement to force companies to account for employee stock options as an expense. While some changes in disclosure may be needed, employee ownership of tech companies is crucial, Chambers said. Regulations that would force companies to change the way they account for stock options would be tantamount to an imagined "Engineering and High-Tech Export Act of 2003," Chambers said.