Cisco Systems reports solid earnings

Bob Moon Aug 11, 2011

Cisco Systems reports solid earnings

Bob Moon Aug 11, 2011

Kai Ryssdal: Down deep in the substantive stuff that drives the markets, aside from bank rumors and rising VIX feeding on rising VIX, there was this item from yesterday. The big computer networking company Cisco looks to be doing pretty well, despite — or perhaps because of — big layoffs. Cisco reported generally solid earnings. They beat expectations — always important. The outlook was generally positive — also important, as long as you didn’t dig too deeply.

Down to the part where Cisco noted that one of its biggest customers is cutting way back on spending. A customer by the name of Uncle Sam.

Here’s our senior business correspondent Bob Moon.

Bob Moon: Traditionally it’s been government spending that’s helped struggling economies come back from recessions and worse.

Government newsreel: Anxiously, we waited — waited for some sign of better days. Then came the federal government’s work program.

Joel Naroff: Normally, when you’re in a recovery, that’s when all governments ramp up expenditures. They hire more people, they spend more money and they add to growth.

Economist Joel Naroff says this time, though, is different. The government isn’t just short of what he calls “fiscal capacity,” it’s under intense pressure to slash spending.

Naroff: That’s why the whole discussion that’ll be going on over the next few months to find out where those spending cuts will come from is so critical to businesses.

Cisco CEO John Chambers as much as conceded that during his conference call with analysts yesterday.

John Chambers: We anticipate global public sector spending to continue to be a challenge for the next several quarters.

If governments aren’t going to be buying as much, the Brookings Institution’s Jennifer Bradley says they need to be careful to get the most bang for the bucks they do spend.

Jennifer Bradley: What you find is that government is having to do workarounds.

Bradley suggests government can stimulate the economy and spur job growth by investing in technological innovation. And spending isn’t the only way to encourage that.

Bradley: The government can, for example, set standards or create kinds of regulations that spur the development of new technologies. Companies will know that there’s a guaranteed market for these new products and services that they’re trying to develop.

Bradley says the word “stimulus” may have fallen out of favor, but the government’s critical role remains.

I’m Bob Moon for Marketplace.

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