Cisco Systems will cut 6,000 jobs and pour the money saved into growth areas as the networking giant continues its transformation into an IT solutions provider in a rapidly changing industry.
Cisco CEO John Chambers, in a conference call with analysts and journalists Aug. 13 to talk about the company's recent quarterly financial numbers, said the cutting of 8 percent of the workforce amounted to a "reallocation of resources" due to "uncertainties in the market." Cisco saw some gains in such areas as its data center business—in particular, its Unified Computing System (UCS) converged solutions—and its commercial line, but that other areas, including emerging markets, are expected to continue struggling in the foreseeable future.
Cisco needs to be prepared to act quickly in an industry that is rapidly being transformed by such trends as cloud computing, big data, mobile computing, the Internet of things (IoT) and software-defined networking (SDN), Chambers said. Layoffs are a way to refocus efforts away from underperforming areas and on businesses that show the best chance of growth.
"It is difficult to do … but the market waits for no one," he said.
The CEO did not give a timeline for the job cuts. He said the company will use the savings from the layoffs to invest in such areas as the cloud, software and services.
Despite the workforce cuts, Chambers said he was pleased with the progress of Cisco's transformation, which began in 2011.
For the quarter, Cisco generated $12.36 billion in revenue, down from the $12.42 billion for the same period last year. Net income hit $2.25 billion, a slight decline from the $2.27 billion in the same quarter in 2013. For its full fiscal year 2014, Cisco revenue came in at $47.1 billion, down 3 percent from 2013, with net income reach $10.9 billion, essentially flat from last year.
Cisco executives said they expect first-quarter fiscal year 2015 revenues to be flat or grow 1 percent.
Cisco and Chambers are under a lot of pressure to restructure itself to meet the demands of the changing industry, moving away from simply being a maker of switches and routers to becoming an IT solutions provider. That pressure was highlighted earlier in the day when a report in Bloomberg noted that executives in such high-profile companies like Coca-Cola, Goldman Sachs and Verizon Communications said they have been talking to Cisco executives about the need for the networking vendor to move rapidly into the SDN realm.
SDN and close cousin network-functions virtualization (NFV) are aimed at enabling organizations to create highly programmable, scalable and automated networks by decoupling the control plane from the underlying physical infrastructure and running many of the networking tasks—such as load balancing and firewalls—on low-cost commodity systems rather than expensive and complex switches and routers.
Some executives from the companies told Bloomberg that the days of them spending millions of dollars every year on big Cisco hardware were coming to an end as they embraced SDN and the cloud.