Cisco to Cut 1,300 Jobs as Corporate Spending Slows Amid Economic Concerns

 
 
By Jeffrey Burt  |  Posted 2012-07-24
 
 
 

Cisco Systems, less than a year after cutting 6,500 jobs in a push to save $1 billion in expenses, is eliminating another 1,300 positions as it looks to deal with the uncertain global economy and weak corporate IT spending.

The networking giant announced the decision to reduce headcount by another 2 percent late July 23, with a spokesperson saying in a statement that job cuts are the latest step in the €œcontinuous process of simplifying the company, as well as assessing the economic environment in certain parts of the world. €¦ We routinely review our business to determine where we need to align investment based on growth opportunities."

In doing so, Cisco joins other top-tier tech vendors€”including Hewlett-Packard, Nokia and Research In Motion€”in eliminating jobs as part of a larger plan to streamline the business and improve profits as they deal with issues brought on by outside economic forces and questionable internal decisions.

Cisco€™s announcement follows its fiscal third quarter in which it posted some positive numbers€”7 percent sales growth and a 20 percent increase in net income€”and strength in key businesses like cloud, video and services. However, CEO John Chambers, in talking with analysts and journalists about the financial numbers May 9, also warned that the uncertain global economy€”particularly in Europe€”was making enterprises and service providers skittish, and causing some to take a wait-and-see approach before spending their IT dollars.

€œWhen I talk to our customers, they do not see [an economic downturn similar to the global recession of a few years ago] occurring in their environment, and they traditionally€”even the areas that have been going slow like service providers and also the financial services industry group€”have said their plans are to spend more in the second half of the year,€ Chambers said. €œHowever €¦ in the very next sentence they said, €˜We are waiting to see what happens in Europe and what happens with government policy.€™€

The job cuts come a year after Cisco underwent a painful restructuring that included not only the 6,500 job losses€”at the time about 9 percent of the workforce€”but also the closing of several businesses, including the profitable Flip video camera, and the reconfiguring of the management structure, such as eliminating the council setup that critics said slowed the decision-making processes at the company.

The restructuring followed several financial quarters of disappointing numbers and outlook, and market-share losses in key network switching and routing segments to rivals such as HP and Juniper Networks. For several years earlier, Cisco had rapidly expanded into more than two-dozen new markets€”what executives called €œadjacencies€€”including consumer technology. Some analysts questioned the aggressive growth strategy and said that Cisco€™s efforts elsewhere forced its attention away from such core businesses as networking, enabling HP, Juniper and others to chip away at Cisco€™s dominant market shares.

Chambers in late 2011 credited the restructuring plan with getting Cisco back on track financially and growing market share in key businesses.

Still, the company€™s fiscal third quarter illustrated how vulnerable Cisco and similar vendors are to issues in the global economy. In May, analysts with Jefferies and Co. applauded Cisco€™s corporate strategy, but noted that outside economic issues were lurking.

€œThe magnitude of the weak Q4 guidance was surprising,€ the analysts said in a May 10 research note. €œIt reminds us that, while Cisco is executing rather well, the business remains highly correlated with the ebbs and flows of the global macro-economy.€

Cisco is scheduled to announce fiscal fourth-quarter financial numbers Aug. 15.

While significant, Cisco€™s job cuts pale in comparison with those at HP, which announced in May it was eliminating 27,000 positions€”about 8 percent of the workforce€”as part of a larger restructuring strategy. Mobile phone makers Nokia and RIM, which are rapidly losing market share to Apple€™s iPhone and devices running Google€™s Android operating system, also have announced job cuts. Nokia executives in June said the company was cutting 10,000 positions, while officials with BlackBerry maker RIM in July said they, too, were eliminating jobs, possibly as many at 5,000.

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