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Cisco's troubles a taste of things to come

In the wake of networking giant Cisco System's disastrous fourth-quarter results, industry watchers say the worst is yet to come...

In the wake of networking giant Cisco System's disastrous fourth-quarter results, industry watchers say the worst is yet to come and are predicting an IT job cull across the sector.

Cisco's net income of $7m (£5m) was a 99% reduction on 2000 figures. Revenue for the quarter ended 28 July amounted to $4.3bn, a 25% drop compared to the corresponding period last year. Its third quarter showed a 4% revenue decline. However, the company made analysts' earning estimates of 2 cents per share.

Many analysts see Cisco's fortunes as an acid test for the IT sector's prospects - and it appears gloomy, with the company planning 8,500 lay-offs.

Richard Holway, the director of Ovum Holway, said, "There will be more bad news to come. I don't believe it is all worked through. For too many quarters, companies like Cisco have been saying it will get better, but the point of no return has been passed. CEOs [chief executive officers] are finally realising they must take action."

As a result, Holway predicts, "a flood of new cost-cutting measures and a job cull in the next couple of quarters".

"I am extremely fearful for the IT services and software industry," he added.

Keith Humphreys, a senior consultant for Eurolan Research, said, "It is a horrible, depressing set of results. There are no signs of optimism from Cisco. If they'd stopped their hiring policy earlier they wouldn't have to make so many lay-offs."

CEO John Chambers blamed the economic climate for Cisco's poor results and predicted that European and Asian economies have a lot further to fall. "The European theatre looks depressing," he said. "It is one quarter behind the US and most countries have been impacted by the global economic slowdown, but I expect it to get challenging before it gets better."

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