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Cisco issues a warning for third quarter

Mon, 04/16/2001 - 8:00pm
Anne Kerven

If market cap is any gauge, a mere year ago, Cisco Systems was a titan, blowing bigger stock market stalwarts out of the water. Its history was notable — in only a decade, it grew from a startup to a company whose routers are ubiquitous in the Internet.

Until yesterday, that is, when the network equipment maker issued a warning on its third-quarter revenue and profit, citing continued global economic challenges.

"The business environment that our segment of the IT industry is facing has never been more challenging," says President and CEO John Chambers in a statement. "In fact, this may be the fastest any industry our size has ever decelerated."

That has prompted difficult business decisions at unprecedented speeds, he adds.

Cisco's market cap in March 2000 reached $560 billion, more than General Motors, Citigroup and Wal-Mart combined, according to The New York Times. Last fall, it still reported strong sales, prompting it to produce extra inventory.

Now, revenues will be down about 30 percent from second quarter's $6.7 billion, and earnings per share are "expected to be in the very low, single-digit range," Cisco reports. The Times reports Cisco's stock price has fallen about 80 percent from its high and erased more than $400 billion in real or paper wealth.

The company will take a restructuring charge of about $800 million to $1.2 billion, associated in part with the layoffs of 8,500 people, including 2,500 temp and contract workers. The workforce cuts will save about $1 billion annually, beginning to show in the fourth quarter, it says.

Cisco also plans to consolidate facilities and "related fixed assets charges," totaling $300 million to $500 million.

And its inventory surpluses prompted a $2.5 billion reduction in inventory value, including $500 million in uncompleted products and $2 billion in raw materials.

Cisco also expects fourth-quarter revenue to be flat or down 10 percent.

Cisco spokesman Steve Langdon told CEDaily facilities worldwide were being evaluated for the proposed consolidations. In some locations, the company may simply stop plans to take on new facilities or expand old ones, he added.

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