John Chambers, President and CEO of Cisco Systems

This is a partial transcript from Your World with Neil Cavuto, August 6, 2003, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

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NEIL CAVUTO, HOST: My next guest says that there are early indications that Cisco’s economic recovery may slowly be gaining momentum. Try telling that to investors, though, punishing the stock today because the company did not beat estimates. It ultimately dropped 6 percent.

With us now from company headquarters, John Chambers, Cisco Systems (search) president and CEO.

John, thanks for coming.

JOHN CHAMBERS, PRESIDENT & CEO, CISCO SYSTEMS (CSCO): Neil, it’s a pleasure to be with you again.

CAVUTO: You know, I looked through this report. It was a pretty good report. The Street had a funny way of reacting to it maybe because you didn’t beat those whispered numbers. What do you make of that?

CHAMBERS: Well, I think if we produce the business results, the stock would take care of itself.

It was a very solid quarter for us in terms of our guidance, probably the most optimistic we’ve been with the appropriate caveats in quite a few years, and in terms of our orders, it was very solid.

But I think you perhaps raised the key issue, which is they always like to see us beat by a penny.

CAVUTO: You know, John, they also raised the issue of people long for the days when the Internet was hot, hot, hot, and they don’t really settle for it just returning to maybe hot. Is that the conundrum you face going forward?

CHAMBERS: No, Neil, I don’t think so. I think most of our shareholders understand how we position our company for growth.

I think most of them view the productivity that we can offer to be a key competitive advantage. And, versus all our competitors, we produce profits of over a billion dollars. Our top 11 competitors lost $1.2 billion in the same quarter.

I think what people are looking for is when will we return to growth and trying to get their arms around what that growth level will be.

CAVUTO: All right. Now, meanwhile you were noticing anecdotally certainly here and abroad more technology spending. Let me just be blunt. Can you ever see it approaching what we had in the late ‘90s ever again?

CHAMBERS: Well, I think you hit an unrealistic high in the late ‘90s, but, if you watch for the growth in technology through the mid ‘90s, et cetera, for those technologies that tied to productivity, they grew at a very healthy pace.

If you would use Cisco as an example just within one segment, what we call our advanced technologies, which make up about 17 percent of our business, Neil -- these are things like IP telephony, security, optical, home networking, storage, et cetera -- they grew sequentially from Q3 to Q4 over 20 percent.

So there are segments of our business that are growing very well, and one of the things we attempted to communicate -- our core business, high- end routing, and high-end switching, if you will, which is probably 80 percent, 70 percent of our business in switching and routing, saw very good order growth in this quarter, the first time we’ve seen that level in quite a while.

CAVUTO: You know, John, the president has been indicating the economy is picking up. He’s seeing it. His tax cuts, he says, are helping. The dividend tax cuts will even help more. Do you agree with him?

CHAMBERS: Yes, I actually do.

If you watch, you want to think of IT community as a whole being a lagging indicator of our customers’ business. As our customers’ business turn up, Neil, then our opinion is they’ll spend on technology, and, if Cisco does a good job, they’ll buy a lot of Cisco equipment. But they’ve got to see their own business turn up.

So I think you’re looking at a gradual recovery, which we believe will first show up in small to medium business, and we saw good signs of that this last quarter. Then, it will be specific to certain enterprise businesses, financial services, if you will, retail, et cetera. And then, that will go slowly through multiple industries, with, unfortunately, perhaps the airline industry or even service providers at the back end.

So we saw initial signs of what we’d be looking for a recovery occur this quarter, but we want to be careful, not get too excited about it because we have been disappointed before. So we always try to say here’s the reason to be optimistic, here are the reasons that you ought to have a little bit of caution and let our shareholders see how accurate you are.

CAVUTO: Well, but -- that’s it. Speaking of shareholders, as you know, technology has led this comeback we had for a while. It’s given back a lot of ground here, but analysts are saying your stock and a host of others are among those most ripe for the fall because they’ve been the most pronounced comeback cases.

CHAMBERS: Well, if you look at the level of optimism we said, Neil, when you’re producing a billion dollars in profits and $1.5 billion in cash and you’re beginning to talk about perhaps three general markets that could all grow well for you and two or three more that we covered yesterday that are growing solidly, then I think, if you look at what the expectations are, if we execute well, I think there’s a very good chance we’ll meet and exceed those.

But it depends on how will we execute, and it also depends very much on the economy. And so we put in place plans over the last two to three years, Neil, that look like they are paying off very well, and time will see it if they pay off as well as I hope they pay off.

CAVUTO: All right. John Chambers, we’ll watch that very closely ourselves.

John Chambers is the man who runs Cisco Systems joining us out of San Jose.

Thank you, John.

CHAMBERS: Neil, it’s a pleasure. Good to see you again.

CAVUTO: Same here.

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