Cisco results add to economic gloom

The company now says that sales for the quarter ending 28 April will fall by as much as 30% from $6.75bn in the second quarter to around $4.7bn. A few weeks ago Cisco said that sales would be ‘flat to down 5%’, the equivalent of $5.9bn.

Cisco chief executive John Chambers blamed deteriorating sales on the US economic slowdown, but added there had also been a slump in sales in the Far East, Asia and Australia.

Furthermore, Chambers said Cisco was experiencing problems in Europe, particurlarly in the telecoms services market and in parts of its enterprise software market.

Profits look like disappearing almost completely. Chambers said results lead to ‘ single digits cents per share’ dividends. Analysts had been estimating eight cents per share.

On the immediate horizon, Cisco’s financial performance and forecast dealt a major blow to hopes that the technology sector would start recovering. Last week, the Nasdaq regained 14% of its value, but optimism that there would be better news from technology companies has been quashed.

Cisco said previously it would lay off 7,500 workers, including 5,000 full time employees. It has now announced 6,000 full time and 2,500 contract workers will lose their jobs, and cost as much as $1.2bn in the third quarter to cover the cost of the redundancies.

‘The business environment that our segment of the IT industry is facing has never been more challenging. In fact, 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 Chambers.

While the lower sales and profit figures were not too surprising to analysts, the fact that the company is throwing out $2.5bn worth of equipment, which will be obsolete when the economy recovers, was a surprise.

Jay Ritter, an analyst with said: ‘I think the size of the inventory write-down is a bit stunning.’

He added that Cisco wants to clear the decks and start from a new base and be able to grow the company between 30 to 50% once the economy regains its health.

Cisco said it built up the inventory in anticipation of meeting continually rising demand. ‘This charge reflects the recent significant and unexpected drop in customer demand,’ said chief financial officer Larry Carter.

Cisco shares were last selling at $17.20 (Pounds 11.98) on the Nasdaq.

  • This article first appeared on Additional reporting by Larry Schlesinger.

Related reading