Cisco Systems Inc's quarterly results topped Wall Street forecasts as a global economic recovery encouraged companies to upgrade their networks, but CEO John Chambers' cautious tone prompted investors to sell the shares.

Chambers said that while the company was making the most of improving business sentiment and was gaining market share, there was still need for some caution as U.S. employment data was still weak.

He also said he would keep an eye on Europe -- which accounts for more than 20 percent of Cisco's revenue -- even though recent worries over sovereign debt didn't appear to be escalating.

Given all the uncertainties regarding the strength and shape of the recovery, concerns about the recovery possibly slowing and the unknown extent of job creation, we encourage you to wait for additional economic data before becoming too optimistic, Chambers told investors on a conference call.

Cisco's stock fell 2.2 percent to $26.15 in extended trading, giving up some of its 3 percent gain on Nasdaq earlier. Investors said the market's recent turbulence may be making investors act cautiously.

The stock had gradually risen since the start of the year, peaking on April 30 at $27.74 -- a level not seen since 2007 -- before falling dramatically in last week's market selloff, sparked in part by concerns that Greek's sovereign debt woes would spread through the Europe.

Cisco's stock has had a tremendous run, so the Street was maybe hoping for even greater guidance. Also, there will continue to be some uncertainty around Europe, said Edward Jones analyst Bill Kreher.

Cisco, the world's biggest maker of routers and switches, forecast current-quarter revenue growth of 25 percent to 28 percent year on year. The average Wall Street forecast was for revenue to grow 25 percent to $10.68 billion, according to Thomson Reuters I/B/E/S.

Cisco is one of the first major technology companies to report results that include all of April 2010, and its performance and outlook are an indicator for the rest of the technology sector, especially in business spending.

Earlier on Wednesday, International Business Machines Corp gave a confident long-term profit forecast that bolstered investor sentiment and sent many tech shares, including Cisco's, higher.

Cisco said increasing Internet traffic helped drive revenue up 27 percent to $10.4 billion for the third quarter through May 1, above the average analyst estimate of $10.2 billion.

Quarterly profit rose to $2.2 billion, or 37 cents per share, from $1.3 billion, or 23 cents a share, a year earlier. Excluding items, profit was 42 cents per share -- higher than Wall Street's forecast for 39 cents per share.

Analysts said the results, while no blow-out, underscored Cisco's continued recovery from the 2009 downturn, and validated its strategy of investing in new technologies and acquiring companies even in lean times so it can emerge stronger than its peers.

We continue to believe that Cisco offers investors one of the most attractive ways to play this tech recovery and participate in new growth opportunities, said Ticonderoga Securities analyst Brian White.

Cisco competes with Juniper Networks Inc and Alcatel-Lucent as well as China's Huawei Technologies Co Ltd. It has been expanding into new areas like data center servers, and acquiring companies like Norwegian videoconference company Tandberg, to bolster its product line and maintain double-digit sales growth.

We emerge from this downturn gaining market share, a larger share of the total wallet spend of our customers, Chambers said. It is clear that our game plan for how to handle economic downturns is hitting on all cylinders.

By region, third-quarter revenue rose 29 percent in the United States and Canada, and 15 percent in Europe. Revenue in emerging markets rose 30 percent and in Asia-Pacific, 41 percent.

Orders, an early indicator of revenue in coming quarters, were up 34 percent in the United States and up 30 percent in Europe, Cisco said. Chambers said the balance of growth, in terms of products, geographies, and various financial measurements, made it the strongest quarter we've had in our history.

(Additional reporting by Dana Ford, Leah Schnurr and Tiffany Wu; Editing by Richard Chang)

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