Cisco could take massive charge from Velocita failure

Cisco is preparing for the possible bankruptcy of Velocita, a carrier start-up in which Cisco has $485 million invested.

Velocita laid off 181 employees--75% of its work force--in late February. Such a move is often the first step toward filing for bankruptcy, and if Velocita goes that route equity investors like Cisco stand to lose.

Cisco took a $200 million stake in Velocita last April and further loaned the start-up $285 million, most of which it agreed to use to buy Cisco equipment over the next two years. Cisco officials, however, told the Dow Jones Cisco has already taken out almost $500 million in reserves to cover the potential losses from the Velocita investment.

--Kevin Fitchard, staff writer