Nov. 6 (Bloomberg) -- Cisco Systems Inc., the top maker of networking equipment, declined in Nasdaq trading after Chief Executive Officer John Chambers forecast the first revenue drop in five years because of the financial crisis.

Sales will fall as much as 10 percent in the second quarter, which ends in January, Chambers said yesterday on a conference call. In August, he predicted a gain of 8.5 percent from a year earlier.

Business changed course after the credit crunch hit, pushing October orders down 9 percent, Chambers said, adding that his comfort level with the forecast was the lowest since the dot-com bust in 2000. Chambers plans to save $1 billion in costs over the next three quarters by curbing hiring, business travel and relocations.

``He's normally a very optimistic guy, so when you hear him talk about the tone of business being what it is now, I don't even know what to say,'' said Chuck Heath, an analyst at UMB Investment Advisors in Kansas City, Missouri, who recommends buying the shares. UMB owns about 760,000 Cisco shares as part of $11 billion in assets. ``It just makes you want to throw up your hands and give up.''

Cisco, based in San Jose, California, dropped 45 cents, or 2.6 percent, to $16.94 in Nasdaq Stock Market trading at 4 p.m. New York time. The shares have declined 37 percent this year.

Technology Bellwether

Morgan Stanley cut its stock-price estimate for Cisco to $22 from $24, and Goldman, Sachs & Co. reduced its projection to $19 from $22.

Investors view Cisco as a technology industry barometer because it dominates the market for routers and switches, equipment that directs the flow of data over networks.

The midpoint of Cisco's forecast puts second-quarter revenue at $9.1 billion. Analysts had projected $10.6 billion on average, according to a Bloomberg survey.

``We extrapolated, assuming October is the most likely scenario for the next quarter,'' Chambers said in an interview. In August, orders climbed 7 percent, he said.

The economic challenges afflicting Cisco's U.S. customers in the financial-services industry have now expanded to Europe and Asia, Chambers said. The U.S. will be the first to recover, he said, without giving a timeframe.

Economists expect the U.S. economy to contract for a second straight period in the fourth quarter, according to a Bloomberg survey, meaning the country is now in a recession.

Credit Squeeze

Credit dried up globally after the collapse of Wall Street firms such as Lehman Brothers Holdings Inc. in September. Banks have incurred almost $700 billion in credit losses and asset writedowns from the deterioration of the subprime mortgage market.

The crisis may shave as much as 2 percent off Cisco's revenue because customers, primarily in emerging markets, won't be able to get credit, according to Ehud Gelblum, an analyst with JPMorgan Chase & Co. in New York. The company got about 11 percent of 2008 revenue from emerging markets, excluding China and India.

Chambers is relying on his Cisco Capital unit to lend to customers and distributors. Last year, the company recorded about 10 percent of sales from the unit, which also leases equipment.

``Where the credit value is meeting our criteria, we may increase our business from a lease standpoint, but we're not going to lower our criteria,'' Chief Financial Officer Frank Calderoni said in a Bloomberg TV interview. ``We see Cisco Capital clearly as an advantage that we have to offer our customers.''

Cisco stuck to an August 2007 projection that calls for 12 percent to 17 percent annual sales growth over the next three to five years.

For the period ended Oct. 25, net income was little changed at $2.2 billion, or 37 cents a share, from a year earlier, Cisco said yesterday. Revenue climbed 8.1 percent to $10.3 billion, the slowest pace in almost three years.

To contact the reporter on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net

Last Updated: November 6, 2008 16:10 EST