Cisco doesn't plan to immediately obliterate any of the components. The excess inventory will be stored and tracked separately, and we will evaluate the inventory in accordance with our policies and scrap or destroy inventory as it becomes unusable, said Larry Carter, Cisco's chief financial officer. Cisco's approach is worrisome to some analysts, who point out that component suppliers will remain in the dark for several quarters until the company updates the status of its written-off inventory. The impact of the Cisco call on the communications components space from an inventory perspective will be negative, said Arun Veerappan, an analyst at Robertson Stephens Inc., San Francisco. It's becoming clear that Cisco will not order at normal levels for at least another two quarters.
Cisco has limited wiggle room.
Its policy is to write off portions of inventory exceeding projected 12-month demand. Unable to estimate future demand while holding tons of specialized components ordered during last year's unbridled growth, Cisco is forced to slowly feel its way out of the current conundrum. Most of our inventory cannot be sold because it is custom built for Cisco and cannot be used by other vendors, Carter said. While we plan to make every effort to sell what inventory we can, any disposition of the inventory will provide nominal, if any, income to Cisco. Mindspeed Technologies, the Internet infrastructure unit of Conexant Inc., is in this category.