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Friday, March 9, 2001

Graphic illustration by Kip Aoki, Bloomberg News photos
Intel CEO Craig Barrett, left, and Cisco Systems CEO
John Chambers have seen their firms fall upon hard times.

Intel's earnings
warning, layoffs,
Cisco job cuts
send techs reeling

The economic environment
continues to worsen for the
two Nasdaq bellwethers

Staff and wire reports

Trouble at tech giants Intel Corp. and Cisco Systems Inc. sent an unstable stock market into a tailspin today.

Normally topping lists of "safe" tech stocks, computer chip-making giant Intel closed down $3.81 today to $29.44 following yesterday's revenue estimate reduction for the first quarter and the announcement of job cuts.

Intel shares have dropped 50.2 percent in the past year.

As the biggest maker of computer-networking equipment, Cisco also has been a favorite of analysts cautious about technology stocks. It dropped $2.19 to a 52-week low of $20.63 following today's announcement that it plans to cut its work force by up to 11 percent, or 5,000 positions.

Cisco shares have lost 70.4 percent in the past year.

The job cuts at the San Jose, Calif.-based company follow a drop in sales to telephone companies and other customers. The job losses will be made mainly through attrition and will affect full-time salaries employees and temporary workers. The company previously announced it was cutting back on discretionary spending.

"We're taking these steps because of the continuing slowdown in the U.S. economy and initial signs of a slowdown expanding to other parts of the world," Cisco CEO John Chambers said.

Cisco's work force has swelled from 8,800 employees in September 1996 to 44,000 this year after a series of acquisitions. The job cuts will affect up to 3,000 of the company's temporary and contract workers in addition to 3,000 to 5,000 regular employees.

Cisco anticipates a one-time charge of up to $400 million by the end of the fourth quarter of its fiscal year.

Cisco and rivals such as Nortel Networks Corp. are looking to control costs as their customers reduce spending. Cisco said Feb. 6 that sales may fall as much as 5 percent this quarter from the last, the first time it would have such a decline in 11 years as a publicly traded company.

Cisco "is having to take drastic measures to get their operating expenses in line," said Christian Koch, an analyst at Trusco Capital Management, which owns about 4 million Cisco shares. "Cutting people is a positive as it will help cut expenses."

Intel will cut 5,000 jobs, or 6 percent of its work force, mainly through attrition, according to the firm. The Santa Clara-based company expects revenue for the quarter to be down by about 25 percent from the fourth quarter's $8.7 billion. Previously, it estimated revenue would be down about 15 percent in the first quarter.

Intel executives blamed the bad news on the current economic slowdown, saying it continues to affect demand for personal computers and has spread to other sectors, including networking, communications and servers.

"This slowdown in demand for PCs has continued and has spread through nearly all sectors of our business and through all geographies," said Sean Maloney, director of Intel's sales and marketing group.

Intel has been branching out into other areas beyond its processors in the face of the saturated personal computer market.

Now, the sour economy has caught up with these other segments, said SG Cowen Securities analyst Drew Peck.

"The processor business was already pretty much in the tank," he said. "Basically, one piece of bad business has become three pieces of bad business."

Intel earned $3.1 billion, excluding charges, on revenue of $8.02 billion, in the first quarter ended April 1, 2000.

Financial woes have beset all sectors of the high-tech industry, from chipmakers such as Intel to computer manufacturers such as Dell Computer Corp. The effects have been felt by Internet companies, networking firms and software developers.

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