Cisco posted solid financial results for its most recent quarter on Wednesday, but the networking giant lowered its financial forecast for the months ahead, citing a slowdown in U.S. and European markets.

The company's earnings were in line with financial expectations. Excluding charges, earnings were $2.4 billion, or 38 cents per share, on $9.8 billion in revenue. Financial analysts had been expecting earnings of 38 cents per share on $9.78 billion in revenue, according to a survey by Thomson Financial.

Sales were up 16.5% year over year for Cisco's second fiscal quarter of 2008, which ended Jan. 26.

Cisco, the world's largest router manufacturer, has benefited from the growth of Internet traffic over the past decade, and -- more recently -- from the flurry of investments in Web 2.0 technologies. But there have been signs recently that growth may be slowing in this area. Just last week, Google alarmed Wall Street by falling just short of expectations, and worries of a U.S. recession may have caused jitters in U.S. stock markets recently.

In a statement, Cisco Chairman and CEO John Chambers expressed optimism for the months ahead, however. "Our innovation pipeline is in excellent shape," he said, "and execution against our long-term strategy remains unwavering."

The next few quarters will be "extremely challenging," Cisco Chairman and CEO John Chambers said in a conference call with analysts, adding that his recent participation in the World Economic Forum in Davos, Switzerland, only reinforced this perception. "We are seeing our U.S. and European customers becoming increasingly cautious. This was my key take-away from the World Economic Forum two weeks ago."

The company saw sales growth drop off during January, and it is sharply lowering its financial guidance for the quarter.

Cisco expects revenue to grow "approximately 10 percent" year over year during the third quarter, Chambers said. Analysts had been expecting revenue growth in the 15 percent range, according to Thomson Financial.

Cisco's stock took a drubbing in after-hours trading after the results were released. It was trading at $21.34 late Wednesday afternoon, down more than 7.5 percent from the day's close, according to Yahoo Finance.

Still, Chambers sounded some optimistic notes during the call. He said that he does not expect market conditions to deteriorate further, and added that lower valuations of technology companies could actually help Cisco, which made 11 acquisitions in 2007.

The IDG News Service is a Network World affiliate.