Election Section

Cisco posts first quarterly loss

The Associated Press
Wednesday May 09, 2001

SAN JOSE — In the latest sign of how the New Economy has faltered, Cisco Systems Inc. on Tuesday posted the first net loss in its history, though its third-quarter results beat analysts’ reduced expectations. 

Executives at the world’s top supplier of network equipment said they remain bullish on the future of the industry overall, but offered only a foggy outlook. 

“We do see a number of positive indications that could result in a bottom in our segment of the industry being reached for capital spending in the next one to two quarters,” said chief executive John Chambers. 

Still, revenue is expected to stay flat or fall 10 percent in the fourth quarter. Chambers declined to provide specific forecasts on the prospects for fiscal 2002, which begins this summer. 

“They have no visibility,” said Robertson Stephens analyst Paul Johnson. “As a consequence, they’re not feeling in the near term particularly confident in what they can say and cannot say.” 

Cisco shares fell 63 cents to $19.74 in after-hours trading after finishing the regular session on the Nasdaq Stock Market up $1.12, or nearly 6 percent, at $20.37. 

For the three months ended April 28, Cisco lost $2.69 billion, or 37 cents per share, compared with earnings of $641 million, or 8 cents per share, in the year-ago period. 

Excluding a number of one-time items, including restructuring charges, Cisco earned 3 cents per share. Analysts surveyed by Thomson Financial/First Call were expecting 2 cents per share. 

Quarter-to-quarter sales also dropped for the first time in Cisco’s 11-year history as a public company. Sales declined 29 percent, to $4.73 billion from the $6.7 billion Cisco recorded in its fiscal second quarter. The results also were off 4 percent from the $4.93 billion posted in the year-ago third quarter. 

“This may be the fastest deceleration any company of our size has ever experienced,” said Chambers. 

Just 14 months ago, Cisco was the world’s most valuable company and the poster child of the New Economy. But a subsequent economic slowdown has caused big companies to cut spending. 

Though other high-tech companies have been suffering in the economic downturn as well, Cisco has been hard hit in most of its businesses. 

Dot-com failures bit into sales, as defunct companies no longer needed Cisco’s equipment. Telecommunications companies also slowed planned rollouts of advanced networks, and big corporations delayed purchases. 

On April 16, the technology bellwether said it was laying off 8,500 workers and taking billions of dollars in inventory and other writedowns. 

Some of Tuesday’s results were better than expected, including a smaller-than-expected write-off for inventory. 

“We believe that the challenges we face are primarily based on macroeconomic and capital spending issues, although there is always room for improvement in our own operations,” Chambers said. 

Chambers hinted that some business segments may be bottoming out, including some areas of the U.S. enterprise market and alternative telecommunications companies. 

Later, in an interview with The Associated Press, chief strategy officer Mike Volpi said visibility remains cloudy. 

“There are some segments that have shown indications of better visibility, but overall it’s still too early to tell,” he said. 

Part of the problem may be that Cisco is a much bigger company now than it was just a year ago, said Seth Spalding, an analyst at Epoch Partners. 

“They haven’t had time to adjust in combination with a economy that has fallen off a cliff,” he said.  

“They’ve been growing up to this point and managing only for growth, and haven’t had to manage a decline.” 

Cisco also may be a victim of its own success and years of record-setting growth and market domination, said Steve Kamman, an analyst at CIBC World Markets Corp. 

“It’s not the company’s fault at all,” he said. “You can only grow as fast as your market — and by virtue of having succeeded so well (Cisco) is very much the size of the market.” 

Chambers also noted that technology — including the routers and switches sold by Cisco — has accelerated business cycles and caught many off guard. 

“The peaks of this new economy will be much higher and the valleys will be much lower, and the movements between the two much faster than almost anyone anticipated,” he said. “We are now in a valley much deeper than any of us anticipated.” 


On the Net: http://www.cisco.com