Cisco Sees 3Q Rev Dn 30% From 2Q;Cuts 8500 Jobs
16 Apr 16:15
( BW)(CA-CISCO)(CSCO) Cisco Systems Offers Business and Financial Update
Business Editors
SAN JOSE, Calif.--(BUSINESS WIRE)--April 16, 2001--Cisco Systems, the
worldwide leader in networking for the Internet, today provided a business and
financial update and summarized recent actions it has taken to address current
business conditions.
Due to continued global economic challenges, the slowdown in the global
telecom market, and the deceleration in corporate IT spending, Cisco expects
revenue for its fiscal third quarter to be down approximately 30 percent
sequentially from fiscal second quarter, which was $6.7 billion. The Company
expects to be profitable for the third quarter, with pro-forma earnings per
share expected to be in the very low, single-digit range. As global economies
and capital spending inevitably turn around, the Company's long-term
expectations for its segment of the IT industry remain at 30 to 50 percent
growth per year.
"The business environment that our segment of the IT industry is facing has
never been more challenging," said John Chambers, president and CEO. "In fact,
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.
During this time we have not changed our long-term vision and business strategy
for the next three to five years, realizing there will be periods of growth in
our industry segment both above and below expected levels.
"Personally, of all the difficult decisions we've had to make, the toughest
was the reductions in headcount," said Chambers. Cisco expects to take a
restructuring charge of approximately $800 million to $1.2 billion during the
fiscal third quarter, associated with the restructuring of certain areas of
Cisco's business.
This charge comprises the following three components:
-- Workforce reduction charge--Ciscois reducing its workforce by
approximately 8500 people, which includes 2500 temporary and
contract workers. Cisco expects to take a one-time charge of
approximately $300 to 400 million this quarter related to this
reduction in workforce. When the reduction in headcount is
fully implemented, Cisco believes these actions will reduce
its overall cost structure by approximately $1 billion on an
annualized basis. Initial savings will begin during the fiscal
fourth quarter of 2001.
-- Consolidation of excess facilities and related fixed assets
charge--Due to the workforce reduction and restructuring of
certain businesses, Cisco expects to consolidate its workforce
into designated facilities, resulting in an excess facilities
charge of approximately $300 to $500 million.
-- Asset impairment charge--The restructuring of certain
businesses will also result in a charge relating to the
impairment of assets, primarily goodwill, of approximately
$200 to $300 million.
Cisco also expects to take an additional excess inventory charge of
approximately $2.5 billion during its fiscal third quarter.
"Business demand consistently exceeded our expectations throughout most of
calendar year 2000," said Larry Carter, chief financial officer. "And in an
effort to meet our customer expectations we continued to increase our inventory
and capacities to keep up with rising demand. This charge reflects the recent
significant and unexpected drop in customer demand." Cisco's inventory balance,
at the end of the third quarter of fiscal year 2001, is expected to be
approximately $1.6 billion after this charge. The Company believes that
inventory turns will increase, eventually moving back to its stated goal of
seven to eight by the beginning of the next calendar year, assuming the
economic challenges are reasonably resolved.
Excluding the charge, Cisco expects its fiscal third quarter pro forma gross
margin will be in the low to mid 50 percent range. The near-term decline in pro
forma gross margin relates to continued overhead costs combined with lower
shipment volumes.
Cisco continues to see capital spending and macro-economic challenges
expanding into other regions of the world. The United States continues to be
challenging, especially in the enterprise and service provider areas of
business. In Asia Pacific, Cisco is seeing weakness in Korea, Taiwan,
Australia, and Japan. In Europe, Cisco is also experiencing weakness, primarily
in the service provider market and in segments of the enterprise business.
The Company currently expects its fiscal fourth quarter revenue will range
from flat to down 10 percent sequentially. Cisco stated that visibility going
forward is more difficult in the current business climate and is subject to
more variability than normal.
"As we saw the business conditions evolving, we took the appropriate steps to
implement and communicate what we believe to be very thoughtful modifications
in the short run, while aligned to our long-term strategy," said Chambers. "We
remain very confident in our long-term growth opportunities and believe our
breakaway strategy positions Cisco to continue to lead our industry."
Cisco plans to report its fiscal year 2001 third quarter results on May 8,
2001 at 1:45 p.m. Pacific Time.
About the Conference Call
Cisco will provide a business and financial update and will summarize recent
actions the Company has taken in a conference call today beginning at 2:00 p.m.
Pacific Time. To listen to the call, U.S. callers may dial 800-857-9819; and
international callers may dial 212-547-0239. An audio version of the conference
call is available from April 16 through May 7 on Cisco System's Web site at
www.cisco.com/go/investors. A playback of the conference call is available on
April 16 at 4:30 p.m. Pacific Time at 800-839-9131 for U.S. callers and
402-998-0952 for international callers. To request a press release to be faxed
toyou, please call 408-526-8890.
About Cisco Systems
Cisco Systems, Inc., (NASDAQ: CSCO) is the worldwide leader in networking for
the Internet. News and information are available at www.cisco.com.
This release contains projections and other forward-looking statements
regarding future events and the future financial performance of Cisco that
involve risks and uncertainties. Readers are cautioned that these
forward-looking statements are only predictions and may differ materially from
actual future events or results. Readers are referred to the documents filed by
Cisco with the SEC, specifically the most recent reports on Form 10-K, 8-K, and
10-Q, each as it may be amended from time to time, which identify important
risk factors that could cause actual results to differ from those contained in
the forward-looking statements, including risks associated with business and
economic conditions and growth in the networking industry in various geographic
regions; global economic conditions; overall information technology spending,
especially service provider capital spending in the data or IP segments;
variations in customer demand for products and services; the ability to
successfully restructure existing businesses; the timing of orders and
manufacturing lead times; changes in customer order patterns; insufficient,
excess or obsolete inventory; variations in sales channels, product costs, or
mix of products sold; the ability to successfully reduce overhead and manage
expenses; the ability to successfully integrate and operate acquired businesses
and technologies; increased competition in the networking industry; dependence
on the introduction and market acceptance of new product offerings and
standards; rapid technological and market change; the trend towards sales of
integrated network solutions; manufacturing and sourcing risks; Internet
infrastructure and regulation; international operations, the timing and amount
of employer payroll tax to be paid on employees' gains on stock options
exercised; litigation involving patents, intellectual property, antitrust and
other matters; stock price volatility; financial risk management; and potential
volatility in operating results, among others.
The financial information contained in this release should be read in
conjunction with the consolidated financial statements and notes thereto
included in Cisco's most recent reports on Form 10-K and Form 10-Q, each as it
may be amended from time to time. Cisco's results of operations for the three
and six months ended January 27, 2001 are not necessarily indicative of Cisco's
operating results for the full fiscal year or any future periods.
Cisco, Cisco Systems, and the Cisco Systems logo are registered trademarks of
Cisco Systems, Inc. and/or its affiliates in the U.S. and certain other
countries. All other trademarks mentioned in this document are the property of
their respective owners.
--30--cs/sf*
CONTACT: Cisco Systems, Inc.
Claudia Ceniceros, 408/525-4700 (Press)
ccenicer@cisco.com
or
Blair Christie, 408/525-4856 (Investor Relations)
blchrist@cisco.com
or
Art Rangel, 408/853-5705 (Industry Analyst Relations)
arangel@cisco.com
KEYWORD: CALIFORNIA
INDUSTRY KEYWORD: NETWORKING HARDWARE COMPUTERS/ELECTRONICS CONFERENCE CALLS
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(END) DOW JONES NEWS 04-16-01
04:15 PM
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