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Chambers reluctantly met with his top executives and decided to lay off 8,500 workers, which was 18 percent of the company's payroll. Chambers said, "This is the toughest decision I've ever had to make." However, from March until November the company's profits increased 76%, to $1.1 billion for the quarter. Sales reached $5.1 billion, a much higher level than in January 2001.
While other rival communication equipment businesses were struggling, Cisco was racking up record profit. Cisco earned a billion more than the year before in 2000. Chambers stated, "We've executed to the point that we have 100 percent of the industry's profits, 100 percent of the cash, and about 70 percent of the market cap.".
Cisco's conversion had to include reducing partnerships in order to cut cost. More than 3,000 resellers and 800 suppliers were terminated. Many of Cisco's employees felt the layoffs were not necessary. Chambers" decisions aged the 54-year old. He explained, "It was obviously the most challenging time in my business career.".
Chambers has always had high goals for the Cisco Company. The fight turned into an uphill battle. In the first fiscal quarter, Cisco's revenues only rose by five percent. Cisco expanded into new markets like the telecom business.
Most corporations paid the high Cisco premium prices rather than switching to weaker company rivals. However, customers were searching for lower prices. Ex-partners that were also networking specialist were eager to help rivals take Cisco down. Many competitors believed Cisco would be hurt financially if it lost half of its smaller distributors and investors.
When Cisco's top executives began to evaluate the deteriorating business situation, they realized they had mountains of inventory that were obsolete. Cisco's stock dropped considerably when the unused inventory of $2.2 billion was reported. To help reduce inventory in the future, Cisco's suppliers decreased from 1,300 to 420.