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Optical/IP

Cisco in Crisis Mode

8:40 AM -- Yesterday's Cisco Systems Inc. (Nasdaq: CSCO) earnings call was plenty dramatic, and I'm not just talking about our headline. (See Cisco Predicts Q2 Plunge.)

My favorite stat was the October order figure. August orders were up 7 percent from the previous year, about what Cisco expected. But October's were down 9 percent. That's a disastrous swing.

By the time CEO John Chambers dropped those numbers, you already knew Cisco was in crisis mode. You knew it because he started rattling off lists. A six-point game plan for the downturn. A five-item priority roster for the continued aggressive strategy. This wasn't his normal "loosely and then tightly coupled" patter.

By "crisis mode," I don't mean panic mode. Panic mode is reckless and ugly. Cisco has been here before -- Chambers guesstimated that 66 percent of his VP-and-above executives were with him in 2000 -- and I'm actually willing to believe the company will emerge from the downturn stronger than before. I didn't sense panic.

But it's definitely crisis time. Employees will be getting the kinds of marching orders they don't like to hear: hiring freezes; extensive cutbacks on off-site meetings and travel. No word about staff cuts got breathed on yesterday's call, but that's got to be on everyone's minds this morning.

The important implications go beyond Cisco, though. Because of its skewed fiscal calendar, Cisco was the first big tech company that had to admit what October looked like. What about everybody else?

Even with pre-announcements, it could be a month before we find out. And assuming it's bad, it could still be argued that it's just a one-time overcorrection. You've already heard my guess. (See 2009: Brace for Impact.) Cisco was the first company to say U.S. enterprise business was slumping, and now it's the first to tell us the economic crisis is giving high-tech a real workover.

— Craig Matsumoto, West Coast Editor, Light Reading

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