Cisco announces earnings shortfall, steep restructuring charges

(Telephony) Networking leviathan Cisco Systems yesterday said it faces lower-than-expected fiscal third-quarter earnings and as much as $3.7 billion in restructuring charges to offset difficult global economic conditions and dwindling customer demand.

The company also announced it would cut 8500 jobs–about 17% of its work force.

In a conference call to investors, Cisco said third-quarter revenues would plunge 30% compared to the second quarter, from $6.7 billion to $4.69 billion. Though the company said it would remain profitable, earnings per share for the quarter are now expected to be in the “very low, single-digit range.”

Thompson/First Call financial set the company’s EPS profit target at 8 cents.

Cisco said it would take a restructuring charge of $800 million to $1.2 billion in the third quarter to cover terminated employees, facility consolidations, and asset impairment charges. Cisco said yesterday’s actions would reduce costs by $1 billion annually beginning in the fourth quarter 2001.

Cisco also expects to incur a $2.5 billion excess inventory loss as well.

“Rather than make quick changes that we may regret later, we have taken the time to implement what we believe to be very thoughtful modifications in our short run while aligning to our long-run strategy,” said John Chambers, president and CEO at Cisco during a conference call.

This is the second consecutive quarter in which Cisco likely will miss its earnings projections. For the second quarter, the company reported an 18 cents EPS profit, one penny shy of analysts’ 19-cent estimate. Second-quarter revenue was $6.75 billion compared to analysts’ $7.1 billion estimate.

The company noted the impact decreased international capital spending has had on its business. Cisco said it is seeing weakness in Korea, Taiwan, Australia, Japan and parts of Europe, though China and India remain strong.

Cisco projects growth to be flat or to decrease during the fourth quarter.

Cisco’s third-quarter earnings call is scheduled for May 8. In afternoon Nasdaq trading, the company’s shares were down 4.94% to $16.35.