Cisco Chief Warns U.S. Slowdown Is Spreading By Christopher Noble, Reuters Mar 14, 2001 (3:42 PM)

URL: http://www.techweb.com/wire/story/reuters-finance/REU20010314S0010

BOSTON—The chief executive of Cisco Systems Inc. said Wednesday that a slowdown in U.S. capital spending appeared to be spreading to other parts of the world. John Chambers, who has warned that 2001 will be a tough year for Cisco (stock: CSCO), said fast action was needed to keep the slowdown from taking a firm hold in economies beyond the United States.

"I originally thought we'd see a challenge for the first half of this year in our segment of the industry and in capital spending in general in the U.S. I now think that it is better than 50-50 that it will go into the second half," Chambers told reporters after a speech to Boston's Chamber of Commerce.

"Our challenge is to fix this before it spreads in a major way to Asia/Pacific, Latin America, or Europe. We are already, however, seeing challenges in Korea, Taiwan, and Australia," he said, noting that Cisco's segment of the industry was not yet slowing in Japan.

Chambers had signaled during the company's latest quarterly results in early February that the company expected weak results for its next two fiscal quarters ending in April and July. Chambers' latest comments suggest that visibility on any rebound had worsened, putting full-year results at risk.

The comments were the latest negative words from one of the New Economy's biggest evangelists. His shift from resolute bullishness earlier this year has highlighted how quickly the fortunes of technology companies can reverse themselves.

Since mid-January, the market has awakened to the possibility that Cisco was not immune to economic slowing and the company's stock has taken a beating, trading at levels not seen since late 1998. Cisco was the most active stock on the Nasdaq Wednesday. It closed down 5.26 percent at $20 1/4, near its 52-week low of $18 6/16 and far below its year high of $82.

Investors have criticized Chambers for failing to cut the company's outlook at a Dec. 4 meeting of analysts despite growing evidence at the time of an economic slowdown. He is just one of many New Economy CEO's to draw fire for remaining bullish well into the slowdown.

The buffeting continues. On Friday, the company said it would cut between 3,000 and 5,000 regular jobs, or seven-to-11 percent of its global employee base of 44,000. At that time Chambers said he expected the downturn to last more than six months.

The company posted a 48 percent rise in fiscal second-quarter earnings for the three-month period ended in January and a 55 percent jump in sales over the year-ago period—explosive growth rates, but short of Wall Street hopes.

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-- Martin Thompson (mthom1927@aol.com), March 14, 2001