Cisco CEO John Chambers sees slack demand as 'relatively short term'; How does he know?

Cisco CEO John Chambers put on his economic cap and noted that customers in the U.S. and Europe are putting the brakes on enterprise spending. But Chambers also said that any economic trauma is "relatively short term." How does he know?

One of the more annoying aspects of the latest round of earnings was the reluctance of executives to give their opinion about the economy. The common refrain was "we're not economists." As one of the circus monkeys in the audience trying to make sense of this stuff I understood that refrain from CEOs but wanted more.

Chambers gave us more and even played economist a bit on Cisco's earnings conference call. Now I understand why other executives kept their mouths shut on the economy. Yapping about the economy only paints you into a corner. Chambers said "our customers in many of the emerging countries -- especially in India and China and Middle East -- remain optimistic about their business momentum. However, we are seeing our U.S. and European customers become increasingly cautious."

He then added that Cisco's order growth in January was about 10 percent, well below forecasts in the mid-teens. That outlook--detailed after Cisco's second quarter earnings report--makes predictions "challenging."

But Chambers was already boxed in. He projected slower growth, but said that he didn't expect orders to deteroriate more. How does he know? Customers seem to think a slowdown is a short-term condition. Unfortunately, these customers can change their mind in a few minutes.

I'd trust Chambers' assessment more than some economist (and I certainly don't know what'll happen), but his projection has guesstimate written all over it. "We did see the slowdown occur pretty rapidly between December and January in terms of our orders and one of the few times we've actually missed our forecast in January in a very long time," said Chambers. "I would not assume by anything we said that we expect it to deteriorate further."

Later in the call Chambers came back with: "I don't mean to imply in any way that we see things spiraling down beyond what we just said to you in terms of the guidance."

Indeed, Chambers isn't a gloom and doom guy. He's arguably the best CEO in the technology industry, but it's impossible to know if slowing growth is the start of a trend or "a bump in the road" when retail and transportation customers--two big indicators of economic health--slowed their spending plans. Chambers seems to think that a slowdown is a passing fad. We just don't know that at this point.

"Whether we return to our longer-term growth target of 12% to 17% in one or two quarter or a little longer is yet to be determined," said Chambers.

If you listen to the Cisco earnings call and comb through the transcript positives abound. Long-term growth of 12 percent to 17 percent is no reason to be depressed, but Chambers noted that Cisco "will always be affected by major economic changes (and) capital spending patterns."

And right now those capital spending patterns overshadow anything else Cisco had to say.