CSCO warning:SAN FRANCISCO (Dow Jones)--Cisco Systems Inc. (CSCO) sees no end to the
slowdown in spending by telecommunications companies, according to a filing
with the Securities and Exchange Commission.
In a 10-Q for its fiscal third quarter, filed Friday, the San Jose, Calif.,
maker of Internet-switching gear said it expects the capital constraints that
have driven some telecoms out of business and forced others to scale back
expansion plans "will continue for the foreseeable future."
Cisco also added new warnings for investors about the potential impact of the
California electricity crisis and the impact of its declining stock price on
its ability to recruit and retain employees. Cisco said rolling blackouts could
disrupt its business as well as its suppliers, leading to possible product
shortages or cost increases.
Despite writing off $2.25 billion of excess inventory during the third
quarter, Cisco said its inventory levels remain "higher than our current sales
forecasts" and could result in additional write-offs. Controller Dennis Powell
said the warning was a standard part of recent Cisco filings. "That's not to
say we have a huge inventory charge yet to come," Powell said in an interview
with Dow Jones.
The filing also detailed for the first time the $289 million in goodwill that
Cisco wrote of during the third quarter. The charges stem from past
acquisitions where Cisco is now eliminating products. Cisco said it wrote off
$108 million in goodwill associated with its acquisition of Monterey Networks
Inc., which made a fiber-optic switch that Cisco said in March it would
discontinue. Cisco also wrote off $79 million related to its acquisition of
HyNEX Ltd., $53 million related to its acquisition of Clarity Wireless and $49
million related to other acquisitions.
But Cisco said in the filing that it would continue making acquisitions.
Cisco also said it would continue extending credit and financing to customers,
despite increasing losses from those loans. Cisco increased its provision for
doubtful accounts to $150 million at the end of the third quarter on April 28,
compared with $89 million on Jan. 27. Powell said that increase didn't
represent bad financing deals, but other Cisco customers that are having
trouble paying their bills because of the economic downturn.
-Scott Thurm, The Wall Street Journal 415-765-6104 |
