Cisco to Cut 6,500 Jobs as Part of Restructuring Initiatives

Monday Jul 18th 2011 by Jeffrey Burt

Cisco will cut 9 percent of its workforce starting in August, according to officials. In addition, another 5,000 jobs will be shed after Cisco sells a manufacturing plant in Mexico to Foxconn.

Cisco Systems executives will cut 6,500 jobs starting in August as part of their efforts to reorganize and streamline the company after several quarters of disappointing financial numbers.

The networking giant announced July 18 that about 9 percent of the company's 73,000 employees will lose their jobs, with about 2,100 leaving via a voluntary early retirement program. In addition to the 6,500 job cuts, Cisco (NASDAQ: CSCO) will lose another 5,000 employees with the sale of its set-top-box manufacturing plant in Mexico to China-based Foxconn Technology Group, which is best known for building such devices as Apple's iPhones and iPads.

None of the employees at the facility in Juarez, Mexico, were expected to lose their jobs, according to Cisco officials. Instead, they will become employees of Foxconn.


There has been speculation about job cuts since earlier this year, when Cisco Chairman and CEO John Chambers, following another difficult financial quarter, said changes needed to be made to get the company moving in the right direction. Cisco had seen several quarters of disappointing revenue and forecasts, prompting Chambers to write a lengthy memo to employees about the need to make changes.

Soon after, Cisco restructured its consumer business, including shuttering its profitable Flip video camera unit, a move that cost about 550 jobs. In May, Cisco reorganized its sales, services and management units. Later that month, Chambers, while talking with journalists and analysts about the quarterly financial numbers, said more streamlining was needed, and that that would include job cuts. The reductions are part of a larger plan to save $1 billion in operating expenses this year.

Analysts earlier this month said the job cuts could number between 5,000 and 10,000.

"While this is a difficult decision to make, in our view, it is required in order to maintain the -competitiveness' of [Cisco] going forward," Gleacher & Co. analyst Brian Marshall wrote in a research note July 11.

According to Cisco, about 15 percent of executives at the vice president level and above will be included in the layoffs. All impacted employees will receive severance pay and outplacement assistance. The job losses will be in the United States, Canada and other "select countries," according to the Cisco statement.

Throughout the past few months, Chambers has noted that many of Cisco's businesses continue to see growth, including its UCS (Unified Computing System) converged data center offering, which after two years now has 5,400 customers. In addition, other areas-such as collaboration and emerging markets-continue to perform well.

However, the company has seen slowing numbers in its public-sector business, and has seen its market share drop in its core switching and routing units as it faces growing competition from the likes of Hewlett-Packard and Juniper Networks. Some analysts have speculated that Cisco's efforts to expand into other business sectors-such as collaboration, smart-grid technology and consumer technology-may have distracted it, enabling HP, Juniper and others to make inroads in the networking space that Cisco has dominated.

In his report earlier this month, Gleacher's Marshall noted that Cisco still holds about 70 percent of the core routing and switching market, and that other businesses-including video communications, data center infrastructure and its Vblock data-center-in-a-box offering-are gaining traction.

However, he said the company needs to take other steps along with the job cuts, including formally lowering its long-term financial targets. Chambers over the past couple of years had said he was targeting annual revenue growth for Cisco at 12 to 17 percent, though he said in May that that goal was "off the table." Marshall said a more modest goal of 10 percent or so made more sense.

 

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