Cisco's Comeback

For the first few weeks of 2001, John T. Chambers, the irrepressibly optimistic CEO of Cisco Systems Inc. (CSCO ), thought the networking giant might neatly sidestep the tech wreck. Twice he had canvassed his top lieutenants, only to rebuff their advice that he lay off workers for the first time in the company's history. But on the evening of Mar. 8, 2001, Chambers landed in Silicon Valley shaken by what he had learned during a two-week business trip around the world. Customer after customer had told him they were slashing spending. Finally, he succumbed: It was time for a massive overhaul. He stayed up all night, hitting the treadmill for hours in his Los Altos Hills home. "I just ran and ran and ran, and thought through the alternatives," he says. At 4 a.m., he decided to call a meeting of his top managers for 6:30 that morning.

It would be a gut-wrenching session. An unusually downbeat Chambers huddled with his top execs and then O.K.'d 8,500 layoffs -- 18% of the payroll. "This is the toughest decision I've ever had to make," he said, according to one person who was in the room. At 9:30, he left to break the news to employees at his monthly breakfast with workers celebrating birthdays that month. "He had serious feelings of remorse, of 'what could I have done differently?"' says Peter Solvik, the company's former chief information officer. "For a year after that, he was somber."