THE WEEK AHEAD: Cisco earnings on tap

After lowering sales and earnings estimates and announcing massive layoffs and a $2.5 billion inventory write-off, Cisco Systems takes center stage next week when it reports its third-quarter results.

First Call consensus now expects the world's largest network-equipment maker to earn 2 cents a share on sales of $4.7 billion.

After missing analysts' estimates in its second quarter, Cisco reduced its already scaled-back targets earlier this quarter. It told analysts to expect sales to fall 30 percent from the $6.75 billion it recorded in the second quarter and earnings per share to be in the low single-digit range.

"The business environment that our segment of the IT industry is facing has never been more challenging," Cisco Chief Executive John Chambers said while issuing the warning. "In fact, this may be the fastest any industry our size has ever decelerated."

Wall Street analysts previously predicted earnings of 8 cents per share and sales of $5.95 billion, according to a poll of analysts by First Call.

In addition to announcing the paltry earnings and disappointing sales, Cisco said it would take a restructuring charge of $800 million to $1.2 billion. The charge is related to a companywide reorganization that includes previously announced layoffs of about 8,500 employees and the restructuring of certain businesses. Cisco will take an additional $2.5 billion charge based on excess inventory.

"In an effort to meet our customer expectations, we continued to increase our inventory and capacities to keep up with rising demand. This (additional $2.5 billion) charge reflects the recent significant and unexpected drop in customer demand," Cisco Chief Financial Officer Larry Carter said in a statement.

The laying off of 8,500 employees, or about 18 percent, includes about 2,500 temporary and contract workers, and is expected to save about $1 billion yearly. To further cut costs, the company will consolidate facilities to save $300 million to $500 million.

Cisco shares actually gained ground earlier this week after Morgan Stanley analyst Chris Stix said networking products were the least likely to be cut by large companies and 87 percent of U.S. businesses surveyed said they plan to upgrade their networks in 2001.

Stix said his firm questioned large North American companies about their planned spending on networking equipment, which is Cisco's bread and butter. He found that the market, while weak compared to a year ago, has stabilized, which is good news for Cisco, he said. Stix also noted that interest-rate cuts from the Federal Reserve are also giving corporations the confidence to spend.

In the year-ago quarter, Cisco earned 14 cents a share on sales of $4.9 billion.

•  Activision (Nasdaq: ATVI) will report its fourth-quarter earnings next week with analysts projecting a profit of 1 cent a share.

In the year-ago quarter, the Santa Monica, Calif.-based game maker earned 4 cents a share on sales of $103.8 million.

Last quarter, it pocketed $20.5 million, or 70 cents a share and raised its outlook for fiscal 2001.

• Aether Systems (Nasdaq: AETH) is expected to post a first-quarter loss of $1.25 a share on sales of $30.6 million next week.

The provider of wireless data services, systems and software enabling people to use handheld devices lost 90 cents a share on sales of $25.8 million last quarter.

Following the fourth-quarter report, company executives told Wall Street to expect wider losses in the next few quarters because it will be investing in new technology and equipment in an attempt to reach profitability ahead of schedule. It now expects positive earnings in the third quarter of 2002.

In the year-ago quarter, it lost 29 cents a share on sales of $5.4 million.

• Time Warner Telecom (Nasdaq: TWTC) is scheduled to report its first-quarter numbers next week.

First Call consensus expects the provider of local and regional optical broadband networks and services to lose 28 cents a share on sales of $163 million.

Last quarter, it posted a loss of $3.4 million, or 3 cents a share, on sales of $134.3 million.