Cisco: Unlikely to Repeat Poor Showing
Thursday May 24, 6:56 am Eastern Time
By Edwin Chan
<<SHANGHAI (Reuters) - Cisco is unlikely to see a repeat of its disastrous third quarter, when the world's largest maker of data networking gear posted its first-ever net loss, a senior executive said on Thursday.
``Precipitous'' twin slowdowns in the global economy and telecoms equipment spending took the company and much of the industry by surprise, Rick Justice, Cisco's senior vice president in charge of global sales, told Reuters in an interview.
But the Internet gear maker would weather the storm, having taken steps to slash costs -- shedding 6,000 full-time staff -- and focus on exploding markets like China, Justice said.
``About catastrophic drops in the business, we don't foresee that happening,'' he said. ``This is a business where we don't anticipate precipitous drops, because we believe that's already occurred.''
``Could there be another 100-year flood on top of the last 100-year flood? I suppose. If there's something we've learned from the last time, it's that you'd better be prepared.''
Cisco Chief Executive John Chambers used the flood metaphor in describing the rare nature of the firm's third-quarter loss.
The $2.69 billion loss after restructuring charges and excess inventory write-offs followed a 30 percent dive in sales from the second quarter and ended a long streak of 30 to 50 percent growth that had made Cisco a darling of Wall Street.
But while Chambers had said earlier this month the technology industry could hit bottom in the next one or two quarters, Justice was more conservative.
``If there's anything you learn from this, it's that you never say never,'' he said.
Growing optimism in the United States that an end to the technology malaise was in sight would take time to filter through to the rest of the world, he said.
``Whenever there's an inventory build-up and you go through an economic cycle, it takes a while to flow through.''
GO EAST
Justice said Cisco was not sitting around waiting for the global economy to turn around. Of the 8,500 staff the company plans to cut, 6,000 are full-time workers, he said.
Cisco would refocus on its most profitable business areas.
One that will escape the hatchet is China, Cisco's fastest growing market, which contributed more than $500 million to global revenue of $18.9 billion in fiscal 2000 and is targeted to achieve $1 billion in 2001 sales.
``When you have challenges on a global front, you scan the world for your greatest relative opportunity,'' he said.
``The immediate impact of the global slowdown would be continuing emphasis in China ... as they (tech firms) find themselves no longer in a pure tornado environment of growth and have to be more focused in their efforts.''
China remains a prime destination for foreign networking gear makers due to its massive domestic market, low technology penetration and pressing need to develop telecoms infrastructure.
``Our growth in China is very, very significant and we intend that to be the case going forward. It's well above 50 percent and it's becoming a significant amount of our business,'' he said.
Besides China, the Asia-Pacific region accounts for 10 percent of worldwide revenue and Cisco expects sales to grow about 60 percent over the next few years.
Cisco has suffered in the United States, where a $500 million quarterly market in service routers for small, local exchange carriers ``vanished overnight,'' Justice said.
Demand generated by local carriers who lease lines from big telecommunications firms and repackage them for customers crumbled because of a sudden pullback in venture capital and a lack of recurring revenue, he said.
``Almost overnight people pulled back their investment in that segment. This was a very rapidly growing area for us ... virtually overnight, it disappeared,'' Justice said.>> |
