Cisco CEO Chambers dashes U.S. IT spending hopes

Any question that the meltdown in the financial services sector will crimp technology spending can now be put to rest. The credit crunch has hit IT spending. Thank Cisco CEO John Chambers for the clarification.

On a conference call following Cisco's first quarter earnings report, which was generally strong, Chambers dropped the following nuggets:

• Cisco had "some softness" in orders from big U.S. customers;
• Saw "dramatic year-on-year decreases in orders" from financial services customers like big banks, who are reeling amid credit problems;
• U.S. enterprise growth will be "very lumpy."

Here are the passages from the call that spooked folks (Enterprise accounts for 41 percent of Cisco's sales in the U.S. and roughly 22 percent overall): On lumpiness in the U.S.

From a U.S. perspective, order growth was approximately 13% year over year. The service provider market segment continued to lead the way with order growth in the U.S. remaining very strong in the low 20s. I would again like to congratulate our U.S. service provider team for their very strong Q1 and their 11th quarter in a row of approximately 20% order growth year over year.

The commercial market continued its solid growth of approximately 20%. Our enterprise business, which includes public sector and federal, grew in the mid single-digits. Our federal business had a very strong quarter with growth of approximately 17% year over year, while the rest of the U.S. enterprise growth was down slightly from a year-over-year perspective. As a reminder, as we said in last quarter's conference call, we expect the U.S. enterprise business to be lumpy and continue to be lumpy.

And.

The U.S. enterprise, probably as a surprise to no one, is experiencing some softness. As a reminder, as we said in last quarter's conference call, we expect and continue to expect U.S. enterprise growth to be very lumpy both by U.S. areas and industries moving forward.

On the IT squeeze.

We actually think U.S. enterprise has really squeezed their IT departments and they really cut back on the spending.

As a CEO, there comes a point in time where you've got to say I've squeezed it pretty tight and if I want innovation for the future, and if we are right about the network enabling these business models, whether it's in two quarters or six quarters -- and I wish I could tell you with a high probability which one it will be -- I would be surprised if you don't see U.S. enterprise start back up. But we will see if that projection is right or wrong with all the appropriate caveats.

On the verticals:

The verticals, the finance one was the one the hardest hit. But it really comes down to our top 25 companies is where we really saw the challenge, the biggest of the U.S. The next layer of enterprise overall wasn't great, but it wasn't bad. So it's the top 25 companies are most hit. Now out of the top 25, eight of them are financial, to kind of give you a perspective. Two of them are automotive. So that's really what we saw occurring.

Give Chambers credit for being a straight shooter. Cisco's quarter was fine and he could have danced around--or at least sugar coated--the demand issue. He didn't. At least no one has to dance around the financial services impact on IT spending anymore.

While Chambers' comments will cause a lot of woe he does happen to run one of the better positioned companies. Cisco's projection for the second quarter banks on continuing demand from emerging markets. So far, that's a good bet, but for how long?