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The BBC's Jane Ball
"These are volatile times for the US economy"
 real 56k

Friday, 9 March, 2001, 22:43 GMT
Silicon Valley giant cuts jobs
Cisco boss John Chambers
Chambers: Economic slowdown is deeper and wider than earlier thought
Cisco Systems, Silicon Valley's biggest company, has said it will cut up to 11% or 5,000 of its full-time workforce in the rest of the current financial year.

The internet networking giant accompanied its announcement with more words of gloom about the wider state of the world's largest economy.

"We're taking these steps because of the continuing slowdown in the US economy and initial signs of a slowdown expanding to other parts of the world," president and chief executive John Chambers said.

"We also now believe that this slowdown in capital spending could extend beyond two quarters."

Stock market chill

The announcement from Cisco will cast a chill over US stock markets, already depressed after a profit warning from computer chip giant Intel on Thursday.

It will also dampen hopes of a revival in the US economy in the second half of this year.

On Friday, the Dow Jones industrial average lost more than 200 points or about 2% while the Nasdaq composite - home to many of the world's top tech stocks - shed more than 100 points or 5%.

Orders fall

Cisco said it was cutting 3,000-5,000 regular jobs, equating to 7-11% of its global workforce, and would take a one-off charge of $300m-400m by the end of the fourth quarter of this year to pay for it.

It also said it would lay off most of its temporary and contract workers, slicing 2,500-3,000 from its current 4,000 workforce.

"While Cisco is only five weeks into the third quarter and it is premature to quantify the impact of this current business climate, we do expect a wider range of [revenue and profit] estimates for the remainder of this fiscal year," said Larry Carter, chief financial officer.

Just weeks ago, Cisco had said a temporary freeze on recruitment had been put in place at the beginning of this year after the company discovered that orders for its products were dropping fast.

Factory production and inventories were also slashed.

Interest rate regret

This followed two years in which Cisco nearly tripled its workforce, adding 30,000 workers worldwide. Mr Chambers told BBC News Online last month he regretted that the US Federal Reserve had not taken action earlier to cut interest rates, and he was worried that if the US slowdown lasted more than six months it would have a significant knock-on effect on Europe and Asia.

He said that many manufacturing companies who are Cisco customers had already made their decisions to scale back capital spending by the end of December, before the Fed's two interest rate cuts in January.

Only a speedbump?

Cisco is the world's leading manufacturers of switches and routers that direct traffic for telecoms and internet providers.

Only last month, Mr Chambers re-affirmed his belief that this was a strong market that would grow 30-50% a year in the medium term.

He said the current downturn would prove to be no more than a "speed-bump" that temporarily slowed growth.

Cisco recently disappointed the stock market when it announced that its quarterly profits for November-January were virtually unchanged from the previous quarter at $1.3bn, after several years of spectacular growth.

Cisco shares closed at a 52-week low of $20.63 on Friday, down $2.19 or nearly 10% on the day.

This compared with a 52-week high of $82.

The volume of trade in the shares on Friday was more than triple Cisco's daily average.

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See also:

08 Mar 01 | Business
Intel cuts 5,000 jobs
09 Mar 01 | Business
Shares battered by Intel
13 Feb 01 | Business
Greenspan warns on US economy
07 Feb 01 | Business
Cisco shares slide 13%
06 Nov 00 | Business
Cisco hits the spot
28 Jan 01 | Business
Tech firm worries at Davos
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