The sales picture for networking giant Cisco has deteriorated so dramatically in recent weeks that the company made a slew of numbing announcements on Monday, including more layoffs and a write-off of $2.5bn worth of equipment.
The company now says that sales for the quarter ending 28 April will fall by as much as 30 per cent from $6.75bn in the second quarter to around $4.7bn. A few weeks ago Cisco said that sales would be "flat to down five per cent", the equivalent of $5.9bn.
Profits look like disappearing almost completely. Chief executive John Chambers said that results would be "low single digits cents per share". Analysts had been estimating eight cents per share.
Cisco said previously that it would lay off 7500 workers, including 5000 full time employees. It has now announced that 6000 full time and 2500 contract workers will lose their jobs, and that it will take a charge of as much as $1.2bn in the third quarter to cover the cost of the redundancies.
"The business environment that our segment of the IT industry is facing has never been more challenging. 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," said chief executive John Chambers.
While the lower sales and profit figures were not too surprising to analysts, the fact that the company is throwing out $2.5bn worth of equipment, which will be obsolete when the economy recovers, was a surprise.
Jay Ritter, an analyst with Morningstar.com said: "I think the size of the inventory write-down is a bit stunning."
He added that Cisco no doubt wants to clear the decks and start from a new base and be able to grow the company between 30 to 50 per cent once the economy regains its health.
Cisco said that it built up the inventory in anticipation of meeting continually rising demand. "This charge reflects the recent significant and unexpected drop in customer demand," said chief financial officer Larry Carter.
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