Cisco Cautious Despite 22% Rise in Income John T. Chambers, chief executive of Cisco Systems, on Wednesday gave a dark outlook for the world economy. It looks like investors in the company, which makes network equipment, agreed and started selling Cisco shares. The company's stock dropped more than 8 percent, even after the company reported that net income was up 22 percent in its fiscal third quarter compared with the same quarter a year ago. Cisco shares had closed at $18.78 in regular trading Wednesday. "We gave them somber news based on the uncertainty," Mr. Chambers said in an interview. It's tough in the short term. He said his company faced hesitant corporate spending, caused in part by worries about Europe's economic slowdown. Government outlays for Cisco's computer networking products have declined, he said. He also cited economic troubles in India and longer sales cycles worldwide. Cisco reported net income in the quarter ended April 30 of $2.2 billion, or 40 cents a share, compared with net income of $1.8 billion, or 33 cents a share, a year ago. Revenue was $11.6 billion, up from $10.9 billion last year. Cisco's forecast for the current quarter was slightly below expectations. Cisco's solid earnings report had much to do with job cuts and other corporate revamping undertaken over the past year. It was also helped by stronger demand from Japanese telecommunications companies one year after that country's tsunami. Over all, the company was able to hold up its gross margins, indicating less price cutting. "Cisco keeps commenting that they'll grow earnings faster than revenues, and technically that is true, but it's because of the restructuring," said Erik Suppiger, an analyst with JMP Securities. I thought we'd see more leverage from that, but it's not apparent in their outlook. Ever willing to be judged by the companies he kicks, Mr. Chambers cited what he said were far worse performances in recent months by most of his major competitors, including Juniper Networks, Alcatel and Huawei. While this may have made a case for Cisco's relative strength, it could be taken as a further sign of overall decline in demand in a worsening global economy. Cisco's dominant share of the computer networking market makes it a bellwether for both the information technology sector and the overall market. An optimistic salesman, Mr. Chambers also found a few positive points to hammer. Revenue was at record levels. Demand in the Asia-Pacific region was strong, he said, particularly in China. Mr. Chambers warned that Cisco would probably need to produce products for this market with fewer features. These, he said in an interview, would be low-cost products that held a high profit margin. Another bright spot was the continuing growth of video over the Internet. Sales of video networking gear to telecommunication companies, he said, was over $1 billion, up 12 percent.