10-QPeriod: Q3 FY2001

CISCO SYSTEMS, INC. Quarterly Report for Q3 Ended Apr 28, 2001

Filed June 1, 2001For Securities:CSCO

Summary

Cisco Systems, Inc. (CSCO) reported its third quarter fiscal year 2001 results on May 31, 2001, for the period ending April 28, 2001. The quarter was marked by a significant downturn, with net sales decreasing by 4.2% year-over-year to $4.73 billion. This decline, primarily attributed to a slowdown in the U.S. economy and reduced IT spending, led to a substantial net loss of $2.69 billion for the quarter, or $0.37 per diluted share, a sharp contrast to the $641 million profit in the prior year's quarter. The company also announced a major restructuring program initiated in April 2001, involving a workforce reduction of approximately 6,000 employees, consolidation of facilities, and related charges totaling $1.17 billion. Furthermore, a significant inventory provision of $2.25 billion was recorded due to a sudden decrease in forecasted revenue. Despite the challenging quarter, for the first nine months of fiscal year 2001, net sales increased by 36.2% to $17.99 billion compared to the same period in the prior year, reflecting strong growth earlier in the fiscal year. However, the nine-month period also resulted in a net loss of $1.02 billion, largely due to the substantial restructuring and inventory charges incurred in the third quarter. Cisco's cash position remains strong, with cash and cash equivalents totaling $5.10 billion at quarter-end. The company is facing increased legal scrutiny with multiple shareholder class action and derivative lawsuits filed. Investors should closely monitor the impact of the economic downturn, the effectiveness of the restructuring efforts, and the company's ability to manage its inventory levels in the coming quarters.

Key Highlights

  • 1Net sales for the third quarter of fiscal 2001 declined 4.2% year-over-year to $4.73 billion, signaling a significant slowdown in demand.
  • 2The company reported a substantial net loss of $2.69 billion ($0.37 per diluted share) for the third quarter, a stark reversal from a profit in the prior year.
  • 3A major restructuring program was announced, leading to approximately 6,000 job reductions and incurring $1.17 billion in restructuring costs and other special charges.
  • 4A significant $2.25 billion provision for excess inventory was recorded due to a sudden decrease in forecasted revenue.
  • 5Despite the quarterly downturn, nine-month fiscal 2001 net sales increased 36.2% year-over-year to $17.99 billion, though the nine-month period resulted in a net loss of $1.02 billion.
  • 6The company maintains a strong liquidity position with $5.10 billion in cash and cash equivalents and $1.098 billion in short-term investments at quarter-end.
  • 7Cisco faces significant legal challenges with multiple shareholder class action and derivative lawsuits filed, alleging violations of federal securities laws.

Frequently Asked Questions

The significant net loss of $2.69 billion in the third quarter was primarily driven by a substantial $1.17 billion charge for restructuring costs and other special charges, and a $2.25 billion provision for excess inventory. These charges were a response to a sudden and significant decrease in forecasted revenue and a slowdown in the networking industry due to macro-economic conditions.

The economic slowdown, particularly in the U.S., led to a decrease in overall information technology spending, which directly impacted Cisco's net sales. Net sales for the third quarter of fiscal 2001 decreased by 4.2% compared to the prior year, primarily due to decreased unit sales of router and access products as customer spending plans were curtailed.

Cisco announced a broad restructuring program in April 2001, which includes a worldwide workforce reduction of approximately 6,000 employees, consolidation of excess facilities, and related charges. The company also recorded a significant provision for excess inventory to account for levels exceeding 12-month demand forecasts, reflecting the sudden drop in demand.

Yes, Cisco maintained a strong liquidity position. As of April 28, 2001, the company reported cash and cash equivalents of $5.10 billion and short-term investments of $1.098 billion. Management believes these resources, along with its line of credit and expected cash from operations, are sufficient to meet its obligations for at least the next 12 months.