Cisco Set To Axe 5,000 Jobs, Analyst Warns

Cisco Systems is expected to cut as many as 5,000 jobs in August, at least according to market research firm Gleacher & Co.

In a research note 11 July, Gleacher analyst Brian Marshall said the job cuts could rival the 8,000 layoffs that Cisco initiated in 2001, soon after the Internet market crash. In this case, the 5,000 job cuts to the company’s 73,000-strong workforce would be painful but necessary, Marshall said, saving Cisco about $1 billion (£626m) annually.

They also would mark only one of several steps the analyst said Cisco has to make to ease Wall Street concerns.

Necessary Action

“While this is a difficult decision to make, in our view, it is required in order to maintain the ‘competitiveness’ of [Cisco] going forward,” Marshall wrote in his research note.

His message comes after Cisco, which has been hampered by several quarters of disappointing financial numbers, looks for ways to improve the company’s operations. The company restructured its consumer business in April, including closing its profitable Flip personal video camera business.

In May, Cisco streamlined its management, sales and services units, a move to help it more easily focus on five IT areas – routing and switching, collaboration, data centre virtualisation and cloud, video, and what officials are calling architectures for business transformation. Cisco also reduced the number of management councils from nine to three.

A week later, during a conference call to announce quarterly financial earnings, Chairman and CEO John Chambers warned of layoffs as the company looked to cut $1 billion in operating expenses this year.

Days after Chambers’ talk, analysts were predicting significant cuts of 4,000 or more.

Marshall’s research note also was released as Cisco Live, the company’s major customer and partner event, gets underway in Las Vegas. The Gleacher analyst said he expects “significant news flow this week,” adding that he was focusing on Chambers’ keynote 12 July and other keynotes.

Plus Points

Despite Cisco’s recent disappointing financial numbers, the vendor has some significant factors working in its favour, according to Marshall. The company has a strong valuation, and it still holds about 70 percent of the core routing and switching market, a maturing sector that doesn’t offer Cisco much room for growth. However, some other business areas that Cisco is looking to grow – from video communications to data centre infrastructure – represent strong growth areas.

He also noted Cisco’s Vblock data-center-in-a-box offering, which includes not only Cisco’s infrastructure products, but also EMC’s storage and security technologies and VMware’s vSphere virtualisation management and services offerings. Marshall called it Cisco’s “ace in the hole,” adding that it seems to be gaining traction in the market.

“Although early in its lifecycle (e.g., Vblocks started shipping at the start of 2010), the ramp has been impressive thus far with partner management (e.g., EMC) recently commenting that Vblock has a $1.0+ billion pipeline with over 120 partners,” Marshall wrote.

However, there are ongoing concerns, he said. Marshall said that Cisco is seeing increasing competition in its core routing and switching business, not only from large competitors such as Hewlett-Packard, but also from the likes of Juniper Networks, Riverbed Technology, Brocade and Force Five, a scenario that he described as “chimpanzees … attacking the gorilla.”