As company makes its transition to more of a cloud services-based model, older jobs are being displaced, and in many cases, will not be re-filled.
Cisco Systems sold products and services worth $12.6 billion in the fourth quarter of 2016 and $48 billion in fiscal 2016, but all that income wasn't enough to stave off a major round of layoffs announced Aug. 17 by the venerable San Jose, Calif.-based company.
The world's largest IT networking equipment provider marked a downturn in the fourth quarter during its quarterly financial report following three solid previous quarters, CEO Chuck Robbins said on a conference call with analysts and journalists. On the same call, Robbins also revealed a restructuring plan that will eliminate up to 5,500 of its 73,104 positions globally.
The job cuts represent approximately 7 percent of Cisco's workforce. The company said it will take action under this plan beginning in the first quarter of fiscal 2017, which means immediately.
Net of $10.7 Billion in Fiscal Year
Cisco reported net income of $2.8 billion in the fourth quarter and $10.7 billion for the fiscal year, both up only a few percentage points over 2015. Yet these are respectable results in a global IT environment—especially in the emerging economies—that the company described as "volatile."
Nonetheless, the company believes it requires a major downsizing in its head count in its continuing quest to move from a strictly on-premises hardware and software vendor to one with most of its business in cloud-based solutions.
The restructuring, Robbins said, will enable the company to optimize its "cost base in lower-growth areas of our portfolio and further invest in key priority areas such as security, IoT, collaboration, next-generation data center and cloud. We expect to reinvest substantially all of the cost savings from these actions back into these businesses and will continue to aggressively invest to focus on our areas of future growth."
Cisco was not specific about where most of the cutbacks will impact the business, but analysts have written that its legacy products—mostly on premises-based servers, routers and switches—do not need the same types of professional service and maintenance help as they have previously. This is because customers are moving more of their systems to subscription cloud services.
CEO Claims Victory in 2016 Numbers
Nonetheless, Robbins crowned the 2016 fiscal year as one of high success.
"We had another strong quarter, wrapping up a great year," Robbins said. "I am particularly pleased with our performance in priority areas including security, data center switching, collaboration, services as well as our overall performance, with revenues up 2 percent in Q4 excluding the SP Video CPE business.
"We continue to execute well in a challenging macro environment. Despite slowing in our Service Provider business and Emerging Markets after three consecutive quarters of growth, the balance of the business was healthy with 5 percent order growth. Our product deferred revenue from software and subscriptions grew 33 percent showing the continued momentum of our business model transformation."
The layoff news was only the latest in a series of announcements this year by Silicon Valley companies. In January, VMware said it is laying off 5 percent of its workforce, or 900 employees.
In February, Yahoo announced it is trimming 15 percent of its workforce, or 1,600 employees; AutoDesk is eliminating 10 percent of its workforce, or 925 employees; and NetApp announced cutbacks of 12 percent of its workforce, or 1,500 employees.
More Layoffs in Store?
In April, Intel revealed it is letting go of 11 percent of its workforce, or 12,000 employees. In June, Seagate announced layoffs of 1,600 employees.
So the Cisco news of Aug. 17 is not an isolated case.
Trip Chowdhry, principal of Global Equities Research, wrote in a media advisory that "CSCO (Cisco) will need to make more layoffs. Seventy percent of the current work which requires Back Expertise, Products and Services is going to get reduced to 30 percent."
Cisco has a high number of longtime, legacy equipment customers who will be moving to new cloud-based products over the next few years.
Overall in Silicon Valley, Chowdhry wrote, "this will result in massive 369,000 layoffs in the tech sector this year alone. Sadly, the new jobs in Functional/Customer Domain will not be immediately filled, as those skills are scarce and the educational system is behind the curve."