Cisco to cut 5,000 jobs; shares drop 10 percent

"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," said John Chambers, Cisco's chief executive and president.

Cisco's stock price plunged to a 52-week low on the news, dropping $2.19, or nearly 10 percent, to $20.63 on the Nasdaq Stock Market. Last March, it was trading above $80.

The announcement was the latest in a litany of warnings and cutbacks by Silicon Valley companies in recent weeks as they cope with a slowing economy, falling demand for computers and everything high-tech.

On Thursday, No. 1 chipmaker Intel Corp. reported its first quarter revenue will fall short of Wall Street's expectations and it was slashing its payroll by 5,000 positions through attrition. On Wednesday, Yahoo! Inc. warned it would break even in its current quarter, badly missing analysts' expectations.

Sun Microsystems Inc., 3Com Corp. and JDS Uniphase Corp. also have issued warnings in recent weeks. "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."

When Cisco executives reported earnings last month, they said the company -- the world's No. 1 maker of networking equipment -- was feeling the impact of the economic slowdown in the area of sales to the telecommunications industry. There was some hope at the time that the downturn would be quick.

"We also now believe that this slowdown in capital spending could extend beyond two quarters," Chambers said Friday.

The reduction in demand has been particularly felt in the routers, switches and other equipment it sells to telecommunications companies that make up the infrastructure of the Internet.

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

Cisco says it expects a wider range of estimates for the remainder of the fiscal year. Analysts surveyed by First Call/Thomson Financial were expecting Cisco to earn 14 cents per share in both the third and fourth quarters, with the company's results for the year ending in July arriving at 64 cents per share.

Cisco's work force has swelled from 8,800 employees in September 1996 to 44,000 this year after a series of acquisitions. It also currently employs 4,000 temporary 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. Cisco anticipates a one-time charge of up to $400 million by the end of the fourth quarter.

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