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Cisco Slims Down Its Workforce

Cisco Slims Down Its Workforce

Cisco is struggling to find its footing, and may drop as many as 10,000 positions from its global workforce to keep from taking a hard fall. "But finding something to take up the slack from the switch business will be tough," noted tech analyst Roger Kay. "A company can never cut its way to growth. It can only stem losses by cutting costs."

By Rob Spiegel E-Commerce Times ECT News Network
07/12/11 12:01 PM PT

Cisco may shed as many as 10,000 jobs, or about 14 percent of its workforce, according to Bloomberg, which cited two sources familiar with the matter. The cuts are meant to revive profit growth; as many as 7,000 jobs could be eliminated by August. Cisco is also providing early retirement packages to about 3,000 workers who accepted buyouts.

Eliminating jobs will help Cisco save US$1 billion in fiscal 2012, the company said in May. In its quarterly filing, Cisco projected costs of $500 million to $1.1 billion in the fiscal fourth quarter as a result of the voluntary early retirement program. The networking-equipment company said it will provide detail on the cost reductions, including layoffs, in its next earnings call, scheduled for early August.

The voluntary retirement packages, which include one year's pay and medical benefits, were offered to about 5,800 employees.

Cisco did not respond to the E-Commerce Times' request for comments by press time.

Get Back to Where You Once Belonged

Cisco is preparing for an environment of greater competition in a slowing market. It's either slim down or slow down.

"I think the cutting of heads is needed at Cisco. They're becoming a leaner, meaner organization," said Zeus Kerravala, senior vice president of global enterprise and consumer research at the Yankee Group.

"The headcount reduction reflects a new focus," he told the E-Commerce Times. "The core of Cisco's problems is re-energizing that focus, and innovating its network products to separate itself from the likes of HP and Juniper."

Cisco is at a turning point where the company either revamps for declines. It may have to amputate its weaker limbs in order to get the stronger ones pumping.

"The company get can now get back to its network roots," said Kerravala. "Cisco is about two years ahead of the field for powering network attached devices. If they leverage what they do best -- and that's networking -- it will get the company back on track. It will be a challenge, but Cisco has proven it can be an execution machine when it focuses on it."

Leveling the Competitve Landscape

Dealing with this downtrodden economy is tough enough. Cisco is accepting the shrinking pains in order to create a new company that can adapt to a changing market.

"Cisco is in the unenviable position of facing an increasing amount of competitive headwinds at the same time we're seeing the overall economy hit some pretty rough bumps," Charles King, principal analyst at Pund-IT, told the E-Commerce Times. "From a long-term strategic point of view, if the company expects those difficulties to continue, it makes sense for it to reduce headcount by layoffs, attrition and offering long-term employees buyouts."

Although Cisco was once the market leader, the game has switched up, and it is now repositoning itself to cope with heftier competitors.

"In the enterprise networking market, we've seen Juniper and Brocade Networks becoming increasingly aggressive," said King.

"There was a point where Cisco was the safe product for companies because they were clearly the leader in the networking space," he noted. "The competitive landscape has become a lot more level these days. At the enterprise system vendor level, you have companies like HP, who were happy to be a Cisco partner, and now they want to get into the networking market."

A New Cisco

The voluntary retirement packages offered by Cisco have confronted employees with a hard decision. They have had to decide whether to take the escape route or risk future layoffs.

"The packages are fairly generous -- a year's pay and two years' COBRA plus target bonuses," Roger Kay, founder and principle of Endpoint Technologies, told the E-Commerce Times. "For someone two years from retirement, that could be a good deal. But for someone mid-career, it's a tough choice. There will likely be more layoffs at some point, and the terms won't get any better."

One of Cisco's major problems is the decline of one of its main markets, switching tools. Compensating for this market slide has proven a tough task.

"At the core, Cisco's problem is that it is reliant on profits from expensive switching gear, and the growth in that market has slowed," said Kay. "The company has been unable to produce new lines of business to replace this aging cash cow."

CEO John Chambers has to brace Cisco for future challenges. The road to recovery could involve dropping chunks of the business that have become sluggish.

"Chambers has already cut some businesses, and he may have to cut more to focus on the things that are working," said Kay. "But finding something to take up the slack from the switch business will be tough. A company can never cut its way to growth. It can only stem losses by cutting costs."


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