Cisco to Cut 8,500 Jobs, Expects Sales to Dive
Reeling from a worldwide slowdown in demand for Internet hardware, computer networking giant Cisco Systems Inc. said sales in the current quarter will plummet 30% from the previous three months, marking its first quarter-to-quarter sales decline since going public in 1990.
San Jose-based Cisco, which rode the Web explosion to become the world’s most valuable company for a period last year, said it will take charges of as much as $3.7 billion for an inventory pileup and to eliminate 8,500 staff and contract jobs, or 18% of its total employment. The layoffs are about 500 more than Cisco expected last month.
“This may be the fastest any industry our size has ever decelerated, which has required us to make difficult business decisions at an unprecedented speed,” said Cisco Chief Executive John Chambers.
Cisco dominates the market for routers, the specialized computers that regulate the flow of information on the Internet. But the rapid decline in demand for Internet hardware clearly has spread to the Asia-Pacific region and Europe, Cisco said.
Cisco said sales to telecommunications companies had fallen the hardest, turning what should have been four months of inventory into a year’s worth.
The company has been hurt by the failure of some Internet and communications companies and by spending cutbacks at others. On Feb. 6, Cisco said sales in this fiscal quarter, ending April 28, would fall by 5% or less from its fiscal second quarter’s $6.75 billion.
Cisco’s new estimate means the company expects third-quarter revenue of only $4.7 billion. Before the announcement, analysts had forecast that Cisco would have third-quarter sales of $5.95 billion and a profit, before charges and acquisition-related costs, of 8 cents a share.
On Monday, Cisco said its profit, before charges and acquisition-related costs, will be in the “very low, single-digit range” of cents per share.
Investors weren’t pleased by the announcement. Cisco shares fell as much as $2.02, or 12%, to $15.18 in after-hours trading after falling 78 cents to close at $17.20 on Nasdaq. The stock had dropped 55% this year.
“They’ve taken their time and put together a comprehensive plan, but it clearly is a major indication that business is very weak,” said Walter Casey, analyst at Banc One Investment Advisors, which owns Cisco shares. Cisco will combine some work sites, and it said it will drop some unspecified products.
Earlier this month, the company said slow sales had led it to stop selling its most expensive optical-networking product, which sold for more than $1 million.
Cisco said it expects to resume sales growth of 30% or better as the economy recovers. In its last fiscal year, Cisco revenue increased 55% to $18.9 billion.
Cisco will take a one-time charge of $800 million to $1.2 billion for the restructuring, including $300 million to $400 million as a result of the job cuts. The company expects to take an additional excess inventory charge of about $2.5 billion.
The company said it expects to save $1 billion a year from the cuts.
In the fiscal fourth quarter, Cisco said, sales will be flat to down an additional 10% from this quarter.
Other networking companies also are in trouble.
“My real concern is not about Cisco,” said analyst Tom Lauria of ING Barings. “Relatively speaking, the company will do well, but if relatively well is having revenue difficulties to this order of magnitude, then I think it is troubling for the industry.”
Lucent Technologies Inc., Nortel Networks Corp. and Cisco’s other rivals have all announced large job cuts or issued profit and sales warnings. Even some of Cisco’s smaller, more nimble competitors have seen business slow.
In March last year, at the height of the long bull stock market, Cisco’s stock value passed that of Microsoft Corp. to become the world’s most prized asset, topping out at more than $560 billion. At $15.18 a share, Cisco is now worth $110 billion.
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Times wire services were used in compiling this report.
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Cisco’s Slide
Cisco Systems, the biggest maker of gear that helps power the Internet, has seen its shares plummet since the start of last year. On Monday, the San Jose-based company said revenue in the current quarter would plunge 30% from the previous quarter because of a worldwide slowdown in demand.
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Cisco Systems, monthly closes and latest
on Nasdaq
Monday after-hours: $15.18, down $2.02
Source: Bloomberg News
