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Cisco Plans to Trim as Many as 8,000 Jobs

Cutbacks: As customers postpone orders for network gear, layoffs underscore worsening tech conditions.

March 10, 2001|ELIZABETH DOUGLASS | TIMES STAFF WRITER

Cisco Systems Inc., the leading computer networking equipment company, said Friday that it will reduce expenses and cut as many as 8,000 jobs to cope with slowing orders and an economic malaise that is quickly spreading to customers overseas.

Chief Executive John Chambers said the downturn in capital spending on technology products "could extend beyond two quarters," a hint that Cisco might fall short of earnings expectations.

The announcement underscores the worsening condition of the entire technology industry, from computer chips to Internet network equipment.

The news also represents a humbling retrenchment for Cisco, a former Wall Street darling so accustomed to nonstop growth that it seemed unable to put the word "layoff" in its announcement, calling the firings "involuntary attrition."

"We're taking these steps because of the continuing slowdown in the U.S. economy and initial signs of a slowdown expanding to other parts of the world," Chambers said in a prepared statement.

Cisco shares fell 9.6%, or $2.19, to $20.63, in regular Nasdaq trading, after hitting a 52-week low of $20.31 during the session. The shares hit a record high of $82 last March.

"The stock is falling apart," said Marvin Roffman, president of Roffman Miller Associates in Philadelphia, which is advising its clients to sell Cisco shares. "It's an admission that the economy is skidding really fast."

Cisco is the latest technology titan to acknowledge that it is feeling the effects of a downturn. On Thursday, leading chip maker Intel Corp. reported that first-quarter revenue would fall as much as 25%--far short of Wall Street's expectations--and that it would trim its work force by 5,000 positions, or about 6%, through attrition. On Wednesday, Internet portal Yahoo Inc. warned it would break even in its current quarter, badly missing analysts' expectations.

Cisco officials said the weak economy has prompted its customers to postpone orders for routers, fiber-optic gear and other equipment used in data networks such as the Internet.

Larry Carter, Cisco's chief financial officer, said the slowdown might hurt Cisco's earnings, but he wouldn't be more specific.

"While Cisco is only five weeks into the third quarter and it is premature to quantify the impact of this current business climate, we do expect a wider range of estimates for the remainder of this fiscal year," he said.

When Cisco announced its earnings last month, executives warned that revenue could fall as much as 5% in the current fiscal third quarter--the first decline in its 11-year history as a public company.

Analysts were expecting Cisco earnings of 14 cents per share in both the third and fourth quarters, according to a First Call/Thomson Financial survey. For the year, analysts project a profit of 64 cents per share.

Cisco, which controls more than three quarters of the global market for products that link networks and power the Internet, posted net income of $1.33 billion in the quarter ended Jan. 27. The profit amounted to 18 cents per share, a penny less than Wall Street analysts expected.

Analysts said the cutbacks indicate that the trouble is not over yet in the technology sector.

"Cisco probably has a closer handle on the current state of its business than any company in America," said William Becklean, an analyst at SunTrust Equitable Securities. "They're seeing weakness in demand like everyone else, and they're taking action to protect their bottom line."

Part of the plan is to reverse course on the job front, where Cisco has been growing steadily.

In a little more than four years, Cisco's payroll swelled from 8,800 employees to 44,000 this year after a series of acquisitions. It also employs 4,000 temporary workers.

On Friday, the company said it will take a $300-million to $400-million charge by the end of July as it cuts 3,000 to 5,000 permanent employees and 2,500 to 3,000 temporary and contract workers.

Regular employee rolls will be reduced through voluntary attrition, layoffs and consolidation, Cisco said. The reductions will occur over the remainder of fiscal 2001.

*

Associated Press and BridgeNews were used in compiling this report.

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Round Trip

Shares of Cisco Systems hit a 26-month low Friday after the maker of networking gear announced layoffs following a drop in sales.

Friday: $20.63, down $2.19

Source: Bloomberg News

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