UPDATE 2-Cisco CEO warns tough decisions ahead

* Chambers: need to take bold steps and tough decisions

* Warns that public sector spending still under pressure

* Sees switching business in “competitive battle”

* Vows to double-down on video
(Adds comments from Chambers, share price)

By Paul Thomasch and Noel Randewich

NEW YORK/SAN FRANCISCO, April 7 (Reuters) – Cisco Inc
(CSCO.O: Quote, Profile, Research) Chief Executive John Chambers, days after admitting
that the company he has led for 16 years had lost its way,
warned of competitive pressures, depressed public sector
spending and “tough decisions” that lay ahead.

Chambers told analysts and investors at a Wells Fargo
technology conference on Thursday that Cisco is a “company that
has many strengths, and a company that has some weaknesses,”
pointing to slow decision-making and weak execution.

As expected, the CEO — one of the industry’s
longest-serving — promised to invest heavily in video
products, such as the corporate videoconferencing Telepresence
service, but otherwise kept his cards close to the vest.

His comments reflected those he made to employees earlier
this week. In a remarkably candid memo, he admitted the
one-time technology bellwether and Wall Street darling would
need to take bold steps to restore its tarnished credibility
[ID:nN05159515].

In his presentation on Thursday, he told investors to
prepare for crucial changes in the weeks and months ahead, but
provided little detail.

“Are we going to make some tough decision and bold
decisions about where we don’t spend? Absolutely,” said
Chambers, among the tech world’s most respected corporate
chieftains.

One area where Chambers made clear he wants to press ahead
is video, a business where he said the company would “double
down.” Chambers also said the routing business is “in very good
shape” but said the company faces intense competition and
hurdles in the other pillar of its core business, switching.

“Switching is our challenge,” he said. “It’s going to be a
tough market for us” given the intensity of competition from
the likes of Juniper Networks Inc (JNPR.N: Quote, Profile, Research), Hewlett Packard Co

PROGNOSTICATIONS

He also noted that public sector spending remains depressed
in the United States and elsewhere and has been further thrown
into question by political unrest in the Middle East and by the
natural catastrophe in Japan.

Considered one of Silicon Valley’s top prognosticators,
Chambers was among the first to warn of the impact of the
financial crisis on the sector in late 2007.

Cisco’s status has been somewhat diminished lately, after
its last two quarterly results disappointed the market. Cisco
said in November that sales growth would be lower than analysts
had expected. In February, it warned of dwindling public
spending and weaker margins from tough competition.[ID:nN08294447]

Cisco shares have dropped a third of their value over the
past 52 weeks and the company has been criticized for losing
touch with its customers and expanding too broadly into
consumer products, such as set-top boxes.

Indeed, analysts speculate that Cisco may be forced to
whittle down a largely unspectacular consumer-oriented business
— from Flip cameras to its Umi home conferencing product —
while refocusing on its core Internet routing and switching
business.

Shares of Cisco fell 22 cents, or 1.2 percent, to $17.85 in
afternoon trading.
(Editing by Tim Dobbyn and Gerald E. McCormick)

UPDATE 2-Cisco CEO warns tough decisions ahead