For the last quarter, Cisco said it earned 32 cents per share excluding non-recurring items from 38 cents per share a year ago. Analysts surveyed by Reuters Estimates forecast earnings of 30 cents per share, excluding items. Revenue fell 7.5 percent from the comparable quarter a year ago to $9.1 billion, slightly ahead of most estimates.

Chief Executive John Chambers said on a conference call that he expects revenue in the third-quarter to fall anywhere between 15 to 20 percent from a year ago, considerably worse than the average analyst forecast of a 10.5 percent decline.

Mr. Chambers' forecast is not surprising given the deterioration of orders during the second quarter. In November, orders were down 9 percent from the year before. December brought an 11 percent decline. In January, the company logged a 20 percent decline.

Chambers said the decline in orders was worldwide, though Europe and Japan outperformed the U.S. and emerging markets. Worse, Cisco's core products of switches and routers registered the biggest declines. This is a particularly bad omen given more than 80 percent of Cisco's revenue is from sales rather than recurring service contracts.

"The environment is very challenging and there are several regions of the world that are still deteriorating. Before things get better the situation needs to stabilize, and we're not there yet," said an RBC analyst.

To combat the weakness, Cisco announced at the beginning of Q2 it would cut back on discretionary spending and freeze hiring, with a goal of saving $1 billion in costs during the fiscal year. Cisco hasn't announced big layoffs yet, and Mr. Chambers says it hopes to avoid any.

Still, he said 1,500 to 2,000 jobs may be cut as part of an ongoing restructuring. He also mentioned that if business continues to deteriorate dramatically and layoffs become necessary, the cuts will probably involve at least 10 percent of its workforce.

Mr. Chambers says the current downturn is both the biggest challenge of our lifetime, but it's also a big opportunity to transform the company and also the economy through a series of bold steps. He and the rest of Cisco's management believe they will be able to gain market share from weaker competitors during this downturn, much as it has done in previous downturns.

With $29.5 billion in cash and investments on its balance sheet and just $6.3 billion in debt, I believe them.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com.