Cisco's

(CSCO) - Get Report

earnings report seems to be working out poorly for everybody but Cisco.

The networking giant surpassed Wall Street's earnings estimates last night, in the process posting its 11th straight quarter of accelerating year-over-year revenue growth. But news of rising inventory at Cisco was knocking the stuffing out of makers of semiconductor parts.

Broadcom

(BRCM)

, downgraded by

W.R. Hambrecht

, was off 18%.

PMC Sierra

(PMCS)

, downgraded by

Banc of America

, was off 16.5%. A host of other communications chip companies, from

Altera

(ALTR) - Get Report

to

Xilinx

(XLNX) - Get Report

, were also sharply lower.

Here's why: Cisco's inventory jumped by 59% from the prior quarter. Worse still, the company's inventory of raw materials, which mainly consist of semiconductor components, grew to $631 million from the prior quarter's $145 million, an increase of 335%. On a conference call, Cisco said that it would try to reduce its inventory level over the next two quarters.

So Cisco won't be needing more chips for a while. And, unhappily for suppliers, the problem doesn't look company-specific.

Nortel

(NT)

last month reported a 57% year-over-year jump in inventory on a 36% increase in sales. In Lucent's most recent quarter, inventories rose 7% even as sales declined 11%.

"Most of the communication systems companies haven't seen it yet," says

Lehman Brothers

analyst Dan Niles. "They're reporting strong order books from Nortel and Cisco. I hear that and I say, Oh, my God, we're dead. If you haven't seen the cutback in orders, that means it's right around the corner."

Altera warned in early November that its revenue growth would be at the lower end of the 12% to 15% range the company had been forecasting. Niles thinks that there are more warnings to come.

"These guys aren't used to the business being cyclical," said Niles. "Most didn't exist in their present form in 1995 and 1996. They look at the order books and say, This is fine. But they don't realize that it can vanish overnight. We'll get a rude awakening in Q4 and Q1."