Cisco Workforce Faces Significant Reduction

Cisco Systems has said that it will reduce its workforce as part of its corporate reorgnisation, and analyst think that the job cuts could be significant.

During a 11 May conference call to discuss quarterly financial numbers, both Cisco Chairman and CEO John Chambers and COO Gary Moore said job cuts were on the way as the networking giant tries to get back on solid footing after several disappoint quarters.

Neither would say how many of Cisco’s 73,400-plus employees would lose their jobs, but both made clear that such cuts were going to play a key role in the company’s efforts to trim $1 billion (£614 million) from its operating expenses this year.

Job Losses

However, four analysts contacted by Reuters said the figure could be as high as 4,000, with the average being around 3,000. Some of that will include an early retirement plan the company has instituted, as well as attrition, but many will be straight layoffs. That would be more than the 2,000 jobs Cisco cut in 2002, after the Internet bubble burst.

However, not all analysts believe the job cuts will be as steep. Shaw Wu, an analyst with Sterne, Agee and Leach, told Bloomberg that he expects layoffs to be in the “low thousands.”

“Nothing that would be … huge,” Wu told Bloomberg. “It seems like more streamlining.”

Chambers during the 11 May call said Cisco will dial down or exit underperforming businesses over the next few months, which will account for many of the layoffs. Soon after Chambers sent out a memo to employees in April saying that Cisco had lost its way and that changes would be made, Cisco revamped its consumer products business, which included closing down its popular Flip video camera line. That move led to about 550 layoffs.

Earlier this month, Cisco announced a reorganisation of its sales, services and management units, including reducing the number of management councils from nine to three.

Switching Challenge

The company has seen success in a number of its many units, such as its collaboration, wireless and data center businesses, the latter of which includes its UCS (Unified Computing System) converged infrastructure offering.

All three saw at least 30 percent year-over-year growth.

However, it’s been hit hard in its core switching and public sector, where federal agencies and state governments are contemplating deep budget cuts. Cisco in 2010 saw its switching market share drop to about 67 percent, according to IDC, down from close to 70 percent previously. Analysts said rising competition from the likes of Hewlett-Packard, Juniper Networks, Avaya and Huawei Technologies are putting pressure on the market leader.

“Cisco is more vulnerable now to competitors than at any time in its history,” Scott Dennehy, an analyst with Technology Business Research said in a report. “The company’s difficulties with execution combined with aggressive tactics by vendors such as HP and Huawei is providing unparalleled opportunities for competitors to take share in Cisco’s core markets. However, TBR expects this window will not be open indefinitely; Cisco has demonstrated its ability to manage through difficult times in the past, and once the company completes its transformation it will re-emerge as a more focused and driven vendor, supported by financial resources few can match.”