This article is more than 1 year old

Where have all the Cisco customers gone?

Pink slips rain on 8,500 staff

Cisco, the nonpareil of networking equipment makers and at one time the sine qua non of tech stocks - (remember last year when for a nano second it was the world's biggest company by market cap) - is feeling the pinch. Big time.

The company yesterday issued a new profits warning - its second in less than a month - and announced its intention to fire 8,500 staff. The company is to take an excess inventory charge of $2.5 billion (where did all the customers go?) and says that its restructuring iwill cost it $800m, for an annual saving of $1bn. Sales in Q3 will be 30 per cent down on Q2's $6,7bn

The economic chill blowing across the US appears to have hit networking equipment manufacturers fastest and worst of all.

The one exception, relatively small Juniper Networks, has grown in a flat market by chipping away at Cisco's market share in routers, the company's key product. As market leader, Cisco will always be vulnerable to this kind of attack. Of course as market leader, it is better able to swat - or buy - competitors than an one else.

Loss of market share in routers and slashed capital spend by US corporates are compounded by the horrors of the telco market.

There's been a large number of US telecom vendors - the so-called CLECs - which have gone bust recently.

This has released a huge amount of almost new networking equipment onto the market - at maybe 10 -20 per cent of the price of Cisco's own products (our source for this is a recent FT article). Worse, the products may not have been paid for - the networking equipment vendors - especially Lucent - have been very promiscuous with debt financing for the new ISPs, telcos etc.

But as we can see - many of their customers, some very large such as PSINet (which is teetering on the brink), are fast running out of IPO cash, and are unable to resource their equipment spend from current sales.

In Europe, many traditional telcos have saddled themselves with debt through the purchase of extravagantly priced 3G licences. The focus here is to build wireless networks - and the big money is pouring into Nokia and Ericsson, not to the likes of Cisco.

Despite these travails, Cisco will remain the world's biggest networking equipment maker for the foreseeable future. The big momentum stock has turned into slow-mo. But however bad it is doing, it can be consoled by the fact that financially inept Lucent and always over-optimistic Nortel are doing even worse. ®

Related link

Press release: Cisco Systems Offers Business and Financial Update

More about

TIP US OFF

Send us news


Other stories you might like