Cisco Triples Bad-Account Provision as Cash Crunch Deepens - TheStreet

Cisco's

(CSCO) - Get Report

deadbeat account column has more than tripled in the span of a year, adding to evidence that some of its network equipment customers are collapsing under the weight of a cash crunch.

For the fiscal first quarter ended Oct. 28, Cisco moved $275 million from operating cash to cover potential nonpayments from failed customers, according to the company's quarterly regulatory filing. The company told analysts on its earnings conference call last month that it was taking insignificant provisions to cover doubtful accounts. It wasn't until this week, when Cisco filed its financial reports, that there was a dollar figure clearly associated with those potential losses. In the year-ago period, Cisco's provision was $75 million.

Cisco downplayed the move, saying the increase in loss provisions is in step with the company's growth and that the number was previously disclosed.

To be sure, the $275 million provision is but a fraction of the company's $6.5 billion revenue for the quarter. But the provision amounts to about a third of Cisco's $798 million in earnings for the period. And with nonpayments piling up, Cisco has been increasingly stepping up to offer financing deals to its equipment buyers, making investors leery about how much bad debt the company will accrue as the deteriorating financial climate culls more telecom and ISP customers from the herd.

Late last month Cisco raised eyebrows by

extending an additional $50 million in loans to the financially struggling digital subscriber line provider

Rhythms NetConnections

(RTHM)

. Rhythms had already burned through $75 million of Cisco's previous loans, and is in danger of financial collapse.

Cisco,

Nortel

(NT)

and

Lucent

(LU)

have all increased their

financing efforts as telcos find the traditional capital sources are drying up. Investors question whether bankrolling network building projects is a wise move at a time when so many telcos are encountering financial trouble.

Other networkers have suffered at the hands of failing upstart telcos as well.

Ciena

(CIEN) - Get Report

shares dipped 4% the September day it took a $28 million

charge as European telcos

iaxis

took refuge in bankruptcy protection.