Cisco forecast sinks chip stocks

When Cisco sneezes, the semiconductor industry catches the flu. Cisco

announced on Tuesday that it plans to reduce semiconductor inventories and

reduce chip orders due to a slackening demand for networking equipment in the

telecommunications sector.

That forecast sent shares of chip companies who heavily depend on Cisco and

similar network equipment companies, tumbling. Broadcom, which depends on Cisco

for 15 per cent of its revenue, saw its shares decline $42 to $176.

PMC-Sierra shares fell nearly $26 to $128 a share. GlobeSpan, which makes

digital subscriber line (DSL) ICs, saw its shares drop 24 per cent, to $50.25.

Cisco is GlobeSpan's top customer, accounting for 31 per cent of revenues. Other

chip companies that were adversely affected by the Cisco announcement included

Applied Micro Circuits and Vitesse Semiconductor.

Cisco had strong sales and earnings in the just-ended first quarter. But

company executives also said they saw some softness in sales to

telecommunications service providers. Cisco said it would start to reduce its

chip inventories in reaction. That move will result in smaller orders for chip

suppliers.