Arik Hesseldahl

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John Chambers Plays Defense as Cisco Shares Tumble (Video)

Shares in Cisco Systems are taking a serious beating this morning and are down a whopping 12 percent following yesterday’s earnings report that showed earnings slightly ahead of expectations, but a disappointing outlook for profits in the coming two quarters. It’s the fourth consecutive quarter that gross margins have declined.

Chambers did his best to put a brave face on things, both on a conference call with analysts and in the interview below with CNBC Asia that aired last night. He said that aside from a glaring weakness in Cisco’s sales to government customers–which are going to be difficult for the next several quarters–and its relatively small consumer business, business is stronger with telecom service providers, as well as with enterprise and service customers.

He also said that gross margins–which came in at 62.4 percent, down from the 63 percent that had been expected–were beset by a batch of new product introductions in the switching business, where sales were notably down by seven percent. The new products all launch with smaller gross margins that improve over time. Meanwhile he’s assembled a working group to study the gross margin problem.

So far, no one seems convinced. At least four analysts have downgraded Cisco’s stock this morning.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik