Cisco swing axe as tech slowdown bites

LOS ANGELES - Two more leading names in the internet economy are being forced to tighten their belts and shed workers.

Silicon Valley's leading networking company, Cisco Systems, was reported yesterday to be thinking of shedding around 5 per cent of its full-time staff, cutting back on contract workers and reorganising its entire corporate structure because of falling business.

That news came hard on the heels of an announcement by Intel, the world's leading chip-maker, that it expected first-quarter earnings to be 25 per cent lower than forecast and that around 5,000 workers out of a worldwide total of 87,000 would be shed through attrition over the next few months.

Neither company faces the kind of trouble afflicting the fledgling website companies that have dropped like flies over the past three months.

But with many of the companies they previously serviced going out of business, it is clear that even hardware producers with proven track records are not immune from the slowdown.

Wearied by the litany of bad news - investors are also absorbing the shock of Yahoo!'s drastically revised earnings forecast, issued earlier in the week – the Nasdaq took a beating in morning trading, losing almost 100 points and drifting down close to the 2000 mark.

The Cisco news was based on unnamed sources at the company talking to Reuters and other wire services. But it broadly reflected public remarks by company executives over the past couple of weeks. Cisco has around 43,000 full-time employees and another 5,000 workers on contract.

A spokesman said an annual attrition rate of about 5 per cent of the workforce was usual – suggesting there would be hiring freeze, if not lay-offs. He added: "It is normal during these business times to aggressively manage expenses, and that includes temporary workers, contractors and holding down travel costs."

Cisco's earnings remained remarkably healthy in the six months to January – the first two quarters of its reporting year - with revenue up 60 per cent to $13.3bn (£9bn) and net income up 36 per cent to $1.7bn. Such robust figures made news of possible cutbacks particularly striking. The shares fell almost 10 per cent in morning trading to around $20.50.