UPDATE 1-Cisco Q3 profit will miss estimates
(Adds analyst comments, background, byline, previous San
Jose)
By Duncan Martell
SAN FRANCISCO, April 16 (Reuters) - Cisco Systems Inc., the
biggest maker of gear that helps to power the Internet, said on
Monday that its third quarter pro forma earnings will miss
analyst forecasts by a wide margin and that it will lay off a
total of 8,500 workers -- in line with its earlier estimate of
job force reductions.
Cisco , saying that the current business
environment "has never been more challenging," said that it
now sees fiscal third-quarter pro forma per-share earnings in
the "very low" single-digit range and that sales will fall 30
percent from second-quarter levels. Thomson Financial/First
Call pegged Cisco's second-quarter per-share profit at 8 cents.
Cisco's news bodes ill not just for the networking giant,
but more importantly, analysts said, for the networking and
communications industries at large. Weakness in demand has now
clearly spread to the Asia-Pacific region and Europe, Cisco
said, adding that it has never seen business slow so quickly
and so significantly.
"My real concern is not about Cisco," said analyst Tom
Lauria of ING Barings. "Relatively speaking, the company will
do well, but if relatively well is having revenue difficulties
to this order of magnitude, then I think it is troubling for
the industry."
Lucent Technologies Inc., Nortel Networks Corp. and Cisco's
other rivals have all either announced large job cuts or issued
profit and sales warnings. Even some of Cisco's smaller, more
nimble competitors, have seen business slow as well.
The San Jose, Calif.-based computer-networking concern also
said it plans to take a restructuring charge associated with
the layoffs of $800 million to $1.2 billion as well as a charge
for excess inventory of about $2.5 billion. Gross margin -- or
the percentage of sales remaining after subtracting product
costs -- will be in the low- to mid-50 percent range.
"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 Cisco Chief
Executive John Chambers in a statement.
Cisco stock last traded at $15.90 on Instinet, down from a
close on the Nasdaq of $17.20, where it fell 78 cents, or 4.34
percent. Cisco shares have tumbled from a year-high of about
$71.88 but have moved up from their year low of about $13.19.
High-tech stocks have plunged in recent months amid a slowing
U.S. economy and flagging demand.
The work force reduction amounts to about 8,500 people, a
group composed of about 2,500 temporary and contract workers.
The company said it expects the actions will cut costs by about
$1 billion annually and that initial savings will materialize
during the fiscal fourth quarter of 2001, which ends in July.
"I think market conditions are a lot weaker than we
expected and even though we had revenue and earnings estimates
that were lower than consensus, the pre-announcement is still
disappointing," said analyst Ken Leon of ABN Amro.
677-2536, with additional
reporting by Peter Henderson in San Francisco))
REUTERS
Rtr 17:14 04-16-01 |
