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News > Technology
Cisco warns again
April 16, 2001: 6:18 p.m. ET

Company sees substantial revenue, earnings shortfall in the third quarter
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NEW YORK (CNNfn) - Cisco Systems on Monday said it expects to report much weaker quarterly results than it previously had anticipated, blaming the shortfall on the slowdown in the global telecommunications market and the deceleration in corporate technology spending.

After the closing bell, Cisco said it expects its revenue for the quarter, its fiscal third, to be roughly 30 percent below the $6.75 billion it reported in the previous quarter.

Analysts polled by earnings tracker First Call had been expecting Cisco, the No. 1 supplier of the equipment used to route traffic over the Internet, to post sales of about $5.95 billion, suggesting a sequential decline of 11.9 percent.

Cisco said it expects its third-quarter earnings per share to be "in the very low, single-digit range." The Street had been expecting a profit of 8 cents per share, according to the First Call survey.

The company said its gross margin, the percentage of sales remaining after subtracting product costs, will be in the low- to mid-50 percent range.

When Cisco reported its fiscal second-quarter results in February, executives lowered the bar for the company's growth, which until recently had been on a tear. At that time, they told analysts to expect a sequential revenue decline in the third quarter where they previously had expected a slight increase.

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The company also has put in place a number of cost-cutting measures, including the elimination of more than 8,000 jobs.

Although Cisco had not come out and explicitly warned of weaker results for the current quarter, which ends this month, John Chambers, its chief executive, has sent clear signals to that effect.

In published reports late last month, Chambers said that the company now expects the downturn in information technology, or IT, spending to last for at least three quarters, where previously it had anticipated a two-quarter decline. Prior to that, he said at an investor conference that the weakness that had been most pronounced in the U.S. appeared to be spreading to other regions.

"The first three-and-a-half months of calendar year 2001 have been extremely challenging for many of us in high-tech," Chambers told analysts during a teleconference Monday evening.

"Changes that used to occur over quarters are literally occurring over months," Chambers added.

Slowdown spreads to Asia-Pacific, Europe

In the U.S., Chambers said Cisco expects booking for enterprise customers in the fiscal third quarter to be about 20 percent below the fiscal second-quarter's level, while booking among telecommunications service providers are expected to fall about 40 percent.

In the Asia-Pacific region, he said the company is seeing weakness particularly in Korea, Taiwan Australia and Japan, while China and India "continue to have reasonably good forecasts." In Europe, he said there are initial signs of weakness, with enterprise segment booking off approximately 10 percent sequentially, while the European service provider segment is expected to decrease about 30 percent.

Cisco on Monday said the total number of jobs it will cut is 8,500, which includes 2500 temporary and contract workers. The company expects to take a one-time charge of between $300 million and $400 million during the quarter related to the layoffs.

Additionally, Cisco said it expected to take a charge of roughly $300 million to $500 million related to the consolidation of several facilities, and another charge of between $200 million and $300 million in connection with the impairment of assets, primarily goodwill.

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The San Jose, Calif.-based company also said it will take a charge for excess inventory of about $2.5 billion, which executives said reflects the significant and unexpected drop in customer demand.

"Business demand consistently exceeded our expectations throughout most of calendar year 2000, and in an effort to meet our customer expectations we continued to increase our inventory and capacities to keep up with rising demand," said Larry Carter, Cisco's chief financial officer.

After this charge, Carter said Cisco's inventory balance at the end of the fiscal third quarter is expected to be about $1.6 billion.

In all, Carter said the company's restructuring measures will result in annual cost savings of about $1 billion, beginning in the fiscal fourth quarter.

Looking beyond the current quarter, Chambers said Cisco expects its fiscal-fourth quarter revenue will range from flat to down 10 percent sequentially, although he emphasized that the limited visibility makes it difficult to accurately forecast future results and the company was prepared to deal with results either above or below that range.

Shares of Cisco (CSCO: Research, Estimates) fell 78 cents to $17.20 on Nasdaq ahead of the news. They fell another $1.22 to $15.98 in extended-hours trade.

The company plans to report its fiscal third-quarter results on May 8. graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.