Cisco Systems Offers Business and Financial Update.

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--April 16, 2001

Cisco Systems, the worldwide leader in networking for the Internet, today provided a business and financial update and summarized recent actions it has taken to address current business conditions.

Due to continued global economic challenges, the slowdown in the global telecom market, and the deceleration in corporate IT spending, Cisco expects revenue for its fiscal third quarter to be down approximately 30 percent sequentially from fiscal second quarter, which was $6.7 billion. The Company expects to be profitable for the third quarter, with pro-forma earnings per share expected to be in the very low, single-digit range. As global economies and capital spending inevitably turn around, the Company's long-term expectations for its segment of the IT industry remain at 30 to 50 percent growth per year.

"The business environment that our segment of the IT industry is facing has never been more challenging," said John Chambers, president and CEO. "In fact, this may be the fastest any industry our size has ever decelerated, which has required us to make difficult business decisions at an unprecedented speed. During this time we have not changed our long-term vision and business strategy for the next three to five years, realizing there will be periods of growth in our industry segment both above and below expected levels.

"Personally, of all the difficult decisions we've had to make, the toughest was the reductions in headcount," said Chambers. Cisco expects to take a restructuring charge of approximately $800 million to $1.2 billion during the fiscal third quarter, associated with the restructuring of certain areas of Cisco's business.

This charge comprises the following three components:

-- Workforce reduction charge--Cisco is reducing its workforce by approximately
8500 people, which includes 2500 temporary and contract workers. Cisco expects
to take a one-time charge of approximately $300 to 400 million this quarter
related to this reduction in workforce. When the reduction in headcount is
fully implemented, Cisco believes these actions will reduce its overall cost
structure by approximately $1 billion on an annualized basis. Initial savings
will begin during the fiscal fourth quarter of 2001.

-- Consolidation of excess facilities and related fixed assets charge--Due to
the workforce reduction and restructuring of certain businesses, Cisco expects
to consolidate its workforce into designated facilities, resulting in an excess
facilities charge of approximately $300 to $500 million.

-- Asset impairment charge--The restructuring of certain businesses will also
result in a charge relating to the impairment of assets, primarily goodwill, of
approximately $200 to $300 million.

Cisco also expects to take an additional excess inventory charge of approximately $2.5 billion during its fiscal third quarter.

"Business demand consistently exceeded our expectations throughout most of calendar year 2000," said Larry Carter, chief financial officer. "And in an effort to meet our customer expectations we continued to increase our inventory and capacities to keep up with rising demand. This charge reflects the recent significant and unexpected drop in customer demand." Cisco's inventory balance, at the end of the third quarter of fiscal year 2001, is expected to be approximately $1.6 billion after this charge. The Company believes that inventory turns will increase, eventually moving back to its stated goal of seven to eight by the beginning of the next calendar year, assuming the economic challenges are reasonably resolved.

Excluding the charge, Cisco expects its fiscal third quarter pro forma gross margin will be in the low to mid 50 percent range. The near-term decline in pro forma gross margin relates to continued overhead costs combined with lower shipment volumes.

Cisco continues to see capital spending and macro-economic challenges expanding into other regions of the world. The United States continues to be challenging, especially in the enterprise and service provider areas of business. In Asia Pacific, Cisco is seeing weakness in Korea, Taiwan, Australia, and Japan. In Europe, Cisco is also experiencing weakness, primarily in the service provider market and in segments of the enterprise business.

The Company currently expects its fiscal fourth quarter revenue will range from flat to down 10 percent sequentially. Cisco stated that visibility going forward is more difficult in the current business climate and is subject to more variability than normal.

"As we saw the business conditions evolving, we took the appropriate steps to implement and communicate what we believe to be very thoughtful modifications in the short run, while aligned to our long-term strategy," said Chambers. "We remain very confident in our long-term growth opportunities and believe our breakaway strategy positions Cisco to continue to lead our industry."

Cisco plans to report its fiscal year 2001 third quarter results on May 8, 2001 at 1:45 p.m. Pacific Time.

About the Conference Call

Cisco will provide a business and financial update and will summarize recent actions the Company has taken in a conference call today beginning at 2:00 p.m. Pacific Time. To listen to the call, U.S. callers may dial 800-857-9819; and international callers may dial 212-547-0239. An audio version of the conference call is available from April 16 through May 7 on Cisco System's Web site at www.cisco.com/go/investors. A playback of the conference call is available on April 16 at 4:30 p.m. Pacific Time at 800-839-9131 for U.S. callers and 402-998-0952 for international callers. To request a press release to be faxed to you, please call 408-526-8890.

About Cisco Systems

Cisco Systems, Inc., (NASDAQ: CSCO) is the worldwide leader in networking for the Internet. News and information are available at www.cisco.com.

This release contains projections and other forward-looking statements regarding future events and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. Readers are referred to the documents filed by Cisco with the SEC, specifically the most recent reports on Form 10-K, 8-K, and 10-Q, each as it may be amended from time to time, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including risks associated with business and economic conditions and growth in the networking industry in various geographic regions; global economic conditions; overall information technology spending, especially service provider capital spending in the data or IP segments; variations in customer demand for products and services; the ability to successfully restructure existing businesses; the timing of orders and manufacturing lead times; changes in customer order patterns; insufficient, excess or obsolete inventory; variations in sales channels, product costs, or mix of products sold; the ability to successfully reduce overhead and manage expenses; the ability to successfully integrate and operate acquired businesses and technologies; increased competition in the networking industry; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; the trend towards sales of integrated network solutions; manufacturing and sourcing risks; Internet infrastructure and regulation; international operations, the timing and amount of employer payroll tax to be paid on employees' gains on stock options exercised; litigation involving patents, intellectual property, antitrust and other matters; stock price volatility; financial risk management; and potential volatility in operating results, among others.

The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent reports on Form 10-K and Form 10-Q, each as it may be amended from time to time. Cisco's results of operations for the three and six months ended January 27, 2001 are not necessarily indicative of Cisco's operating results for the full fiscal year or any future periods.

Cisco, Cisco Systems, and the Cisco Systems logo are registered trademarks of Cisco Systems, Inc. and/or its affiliates in the U.S. and certain other countries. All other trademarks mentioned in this document are the property of their respective owners.