BBC Tuesday, 8 May, 2001, 22:11 GMT 23:11 UK

Cisco profits plummet

Cisco chief executive John Chambers faces turbulent times

High tech giant Cisco has reported a dramatic fall in quarterly profits, as it battles a slowing global economy and flagging spending on telecoms equipment.

The internet equipment maker - at one time the world's most valuable company - is seen as a key indicator of the future health of the volatile high tech sector.

Its eagerly-anticipated fiscal third quarter figures were slightly ahead of Wall Street expectations, which had been dampened by a profit warning in April.

But the company also posted its first ever net loss and, according to its chief executive, one of the biggest slowdowns in business on record, for a company of its size.

Long-term outlook

For the three months to 28 April, Cisco lost $2.69bn, or 37 cents per share, compared with profits of $641m, or 8 cents per share, for the same period a year ago.

Excluding one-time gains and losses, Cisco earned $230m, or 3 cents per share.

Analysts surveyed by Thomson Financial/First Call were expecting 2 cents per share.

Quarter-to-quarter sales also dropped for the first time in Cisco's 11 year history as a public company.

Sales declined 29%, to $4.73bn from $6.7bn Cisco recorded in its fiscal second quarter.

Chief executiver John Chambers said in a statement that he remained confident "The long-term outlook for this new economy, and the role that the internet and Cisco play in this new economy, has not changed."

But he added: "This may be the fastest deceleration any company of our size has ever experienced."

Dot-com failures

Although other high-tech companies have been suffering in recent months, as the leading provider of routers and switchers that run the internet Cisco has been hit hard across most of its businesses.

Dot-com failures have taken huge chunks out of sales, as defunct companies no longer needed Cisco's equipment.

Telecoms companies also slowed planned rollouts of advanced networks, and big corporations cut spending.

Victim of own success

Cisco shares fell in after hours trading on the news before recovering slightly.

The company declined to offer a specific outlook for the coming months.

"We believe that the challenges we face are primarily based on macro-economic and capital spending issues, although there is always room for improvement in our own operations," Mr Chambers said.

Just 14 months ago Cisco was the world's most valuable company, but its its market valuation has fallen from $560 billion to about $110 billion.

Some analysts believe Cisco may be a victim of its own success and years of record-breaking growth and market domination.

Steve Kamman, an analyst at CIBC World Markets, said: "It's not the company's fault at all."

"You can only grow as fast as your market - and by virtue of having succeeded so well (Cisco) is very much the size of the market."

Brian Fabbri, chief economist at Paribas Capital Markets, told the BBC's World Business Report: "Cisco exists in an industry that's burdened by overcapacity.

"They have to shrink before they make money.

"Not just in terms of jobs but in the industry itself.

"They still have to shake out some of the newcomers that didn't make money. And in this particular industry, the servicing side needs to shrink as well."

Cisco plans to cut up to 8,500 jobs across its operations.

-- Anonymous, May 08, 2001