Cisco's shining light dims after Q3 loss

Analysts this week questioned how Cisco Systems, long regarded as the shining embodiment of an Internet-enabled company with "real time" IT processes, has attributed $US2.2 billion of its third-quarter losses to inventory write-downs.

The figure was part of a $5.2 billion loss reported by the networking giant which has always espoused the virtues of its "virtual close" accounting processes that allow executives to review the financial state of the company on a daily basis.

Gartner research director Geoff Johnson said there must have been warning signs to alert the company to a huge store of components.

"They must have seen the economic slowdown in the second half of last year but my suspicion is that the inventory write-down had a bit to do with human issues rather than processes," Johnson said.

"It's about backside protection because they all share the same retail information and if they don't close a deal or have a cancellation this quarter they will get it in the next; when managing sales information you look at the numbers then talk to the people."

Johnson said Cisco has dealt with the downturn aggressively and is not known for on-loading equipment to resellers to get stock off its books.

However, he doubted claims by Cisco it will not sell or use any of the inventory it is writing off.

"I doubt the inventory will be destroyed, it will just move down the pipeline slower," Johnson said.

A spokesman for Cisco said the inventory was built up before demand slowed down.

In a formal statement, Cisco CEO John Chambers said the company had misread the magnitude of the slowdown.

"We underestimated how quickly the valley could occur; you will see us learn how to respond to the troughs more quickly and be more cautious," Chambers said.

Cisco is still holding to long-term projections showing annual revenue growth of 30 to 50 per cent over the next three to five years.

"But the company expects more turbulent times going forward with higher business peaks and lower valleys," Chambers said.

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