Cisco Planning Massive Layoffs: 1,300 Workers Will Get Pink Slips

By Jim Donahue

Cisco Systems, the biggest maker of computer-networking equipment, continues to struggle and plans to eliminate about 1,300 jobs, or 2 percent of the workforce, as Europe’s debt crisis and sluggish corporate spending threaten sales.

Cisco shares have tumbled 11 percent this year as Chief Executive Officer John Chambers works to reverse a slowdown in sales growth and stem market-share losses. In May, Chambers cited Europe’s debt crisis, weak government spending and a drop in orders from large corporate customers for a fourth-quarter profit forecast that was below analysts’ estimates.

The layoffs come as Cisco’s sales have been relatively flat the past four quarters and some analysts doubted that they reflect a general weakening of the overall tech economy. However, others said the soured economic climate could have been a factor. “I don’t think 1,300 by itself is going to make a dramatic difference, Chambers said in an interview. “Until they start generating healthier top-line growth or reverse some of the gross-margin pressures that they’ve seen, I think they’re going to have to start very aggressively focusing on their operational efficiencies.”

In May, Cisco reported a 1 percent decline in orders from large corporate customers in the fiscal third quarter. Chambers said spending by those customers got “a little bit tougher,” and the company was facing a “hesitant spending environment.”

“There are areas of the macroeconomic environment we cannot control,” he said at the time.

William Kreher, an analyst with Edward Jones, said the latest round of cuts “may be just further pruning” from the downsizing the company began in July last year, when it disclosed it was eliminating 6,500 positions, about 9 percent of its global workforce.

“It’s no secret that the economy has weakened,” Kreher added. “Yet Cisco has had some self-inflicted wounds along the way” and is eager to streamline its operations because it’s facing more competition, particularly in its data-center business.

Baird & Co. analyst Jayson Noland agreed, adding, “I think it’s just fine-tuning from what they started last year.” Noland added that he’s heard Cisco may be trying to reduce its field sales operations on the hope that some sales duties can be assumed by firms it relies on to help market its products.

But Forrester Research analyst Andrew Bartels added that worldwide computer networking sales are expected to decline by 2 percent this year over last. And while Cisco doesn’t focus on the most vulnerable parts of the networking business, he said, it may be making trims now because sales of networking gear are expected to be particularly sluggish during the middle of the year.

“We are still in an uncertain environment economically,” Chambers told analysts in a May conference call, later adding, “We will muddle through this with a little bit of bumps on the road.”

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