Cisco, HP Join on New Year's Cost-Cutting Shutdown

In the latest indication that the global economic crisis is having a negative effect on the networking company, Cisco Systems Inc. (Nasdaq: CSCO) will largely shut down its U.S. and Canadian operations for one week at the end of the year as part of cost-cutting measures "given the challenging macroeconomic environment," the company said Tuesday.

Except for some critical teams like technical assistance, channel partner, and customer product ordering, Cisco will close shop from Dec. 29 to Jan. 2. It's not clear if Cisco has ever shut down for a week as a precautionary cost-cutting measure before, but Hewlett-Packard Co. (NYSE: HPQ) (which often shuts down for a week during the holidays) last week said it would add another week of closure to its schedule this year.

During an earnings call earlier this month, Cisco CEO John Chambers laid out a multipronged plan to save about $1 billion in expenses next year. The cuts will come from reduced spending on travel, marketing, and events as well as other measures, including a hiring "pause." Chambers said the company would continue to "be aggressive" investing in new products and markets during the "slowdown," though he noted those plans could shift if Cisco determines that the bad market will last longer than expected. "We are seeing customers, not just in the financial, automotive, or retail sectors, but across most of our enterprise industries, facing what they view as a very challenging business environment," Chambers said at the time. "When you are the No. 1 player in many of these categories and the slowdown has truly gone global across all of these industry segments, geographies and product families, we will be impacted."

Chambers noted that October was an especially bad month for the company, with orders down 9% year over year. Though the company beat Wall Street expectations for last quarter, it expects revenue to shrink between 5% and 10% in the next quarter. InformationWeek cousin publication ChannelWeb first reported Cisco's impending end-of-year shutdown on Monday, and Cisco's stock price dropped by about 5% by midday Tuesday.

Not that all of Cisco's competitors are necessarily doing any better in these market conditions. Nortel Networks is in much rockier straits. Earlier this month it announced that six top executives would be leaving the company at the beginning of the year, 1,300 employees would be laid off, and revenue was down 14% from a year earlier. Nortel also announced hiring and salary freezes. Later that week, RBC Capital Markets analyst Mark Sue slashed his price target on Nortel's stock to zero, raising the specter of bankruptcy.— J. Nicholas Hoover, InformationWeek