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FTC probes Cisco talks

The networking firm gets a double blow in Washington and on Wall Street with news of an antitrust inquiry and a downgrading of its stock.

Cisco Systems got a double blow in Washington and on Wall Street today with news of a government antitrust inquiry and a downgrading of its stock based on concerns over growth.

The Federal Trade Commission is looking into discussions between the networking giant and other companies in the sector. At issue is whether Cisco had colluded with others to divide up the rapidly changing networking market.

At the same time, Cisco's stock dropped more than 13 percent in Cisco stock chart heavy trading early in the day after an analyst with SG Cowen downgraded the high-flying firm's stock to a "buy" from a "strong buy." The analyst cited an ongoing slowdown in the networking market, exemplified by the recent lowered expectations announced by Alcatel and Nortel Networks, formerly Northern Telecom.

Cisco executives confirmed that the San Jose, California, company had received a letter last week from the FTC requesting details about discussions last summer with Lucent Technologies and Northern Telecom.

"Cisco has been asked by the FTC for information about separate discussions it had with Nortel and Lucent about partnership opportunities. The nature of these strategic talks were openly discussed and well-publicized over the last 12 months in several industry forums and many press reports," Cisco general counsel Dan Scheinman said in a statement today.

"We view this inquiry as a preliminary and routine matter. These discussions are not a review of Cisco business practices as a company, but instead a review of talks that ended more than six months ago," the statement added.

Cisco chief John Chambers has often stated in interviews that mutually beneficial partnerships remain one aspect of the company's strategy to extend its market presence. The company's interest in partnering with Nortel cooled once that firm merged with Bay Networks; a potential relationship with Lucent fell through this spring once it became clear that the data giant and telecommunications equipment provider had too many areas of overlap.

Lucent and Cisco have since sued each other over disagreements concerning patented technology.

"In the technology industry, no one company can satisfy the needs of every customer.... Cisco has a long history of bringing new products to market through internal development, acquisitions and partnerships," Scheinman added in today's statement. "We are confident about the outcome of this inquiry. Cisco is an open company that abides by the rules. We are already working with the FTC to provide all of the necessary information."

FTC officials were not immediately available to comment.