The past month has seen pleasant surprises from tech leaders Google, Microsoft, and IBM, which have turned in rosy earnings despite a gloomy economy.

But John Chambers, chief executive of Cisco, has never been a fan of surprises and hasn't been celebrating. In fact, he's made enough grim remarks that when Cisco reports earnings Tuesday, it will take very little good news to surprise investors.

Earlier this month, Chambers told Reuters that he expected the economic downturn sparked by the subprime meltdown to last into early 2009, rather than merely late 2008 as he'd originally predicted. Investors punished Cisco by slashing its stock price around 5% in a day, and analysts adjusted their estimates of the company's earnings.

Analysts following Cisco now predict income of 39 cents a share on sales of $10.3 billion for the company's fourth quarter, which ended late in July. Sales are expected to rise 9.3% from the year before, just over half the rate of growth in the corresponding quarter a year ago.

"These are growth numbers for a recession," said Pacific Growth Equities analyst Matthew Robison.

There are other reasons to set Cisco's bar low. Chambers hinted that the U.S. enterprise technology market remained "soft." The chief executive of Juniper Networks, one of Cisco's chief competitors, used the same word last week to describe the quarter or so of his company's business that sells networking equipment directly to large companies rather than to Internet service providers (ISPs). For Cisco, those customers represent 75% of the company's revenue, according to research firm IDC.

But don't expect Cisco to miss its widened target, said IDC's Eve Grilliches. She said that even in a downturn, companies need to buy networking equipment to keep their internal infrastructure and Web sites up and running.

The other quarter of Cisco's business, which sells routers, switches and other network equipment to ISPs, will continue to benefit from consumers' ever-growing hunger for bandwidth. "In the end, networking equipment sales can't fall off that dramatically," Grilliches said. "And Cisco has already been very careful to manage expectations."

Cisco's enterprise technology sales may be partially insulated by its international sales, which account for about half its revenue. Some newer elements of Cisco's U.S. business could benefit from a chilling economy.

Cisco's unified communications systems and TelePresence hardware, for instance, which are designed to facilitate easy remote conferencing, may be seen as a cost-cutting measure to replace expensive travel as fuel prices rise.

But Cisco's more central business of selling expensive network gear to companies may be sagging. Employees of large corporations don't demand the same growing levels of bandwidth as the average Web user, says Pacific Growth Equities' Robison. That means spending on a company's local area network suffers in a downturn.

He also doesn't expect Cisco's enterprise sales to get much of a boost from its latest switch, the Nexus 7000. That machine, which Cisco says took three years and $250 million worth of research, has been slow to hit the market, said Robison.

Regardless, Robison won't be looking at Cisco's short-term results as much as its outlook for future quarters, a measure he says ties in closely with trends in the U.S. economy.

Cisco's Chambers "surveys the market more than anyone I've ever seen." he said. "He has lots of data. So whatever he says will be seen as a macro indicator."

Source:forbes.com