Cisco Reveals New Round of Layoffs Despite Solid Earnings

Cisco Systems lifted more than a few eyebrows Aug. 14 when during its quarterly earnings call it revealed plans to lay off about 4,000 employees, or 5 percent of its workforce, in the next 12 months as part of an impending restructuring.
The layoff news was not dictated by current income or profitability numbers. The San Jose, Calif.-based networking giant’s profit beat Wall Street estimates by improving to $2.27 billion (42 cents per share) from $1.92 billion (36 cents per share) in the same quarter a year ago.
Revenue took a healthy hike up 6.2 percent to $12.42 billion from $11.69 billion, also exceeding expectations.
Nonetheless, the stock price skidded more than 9 percent to $26.38 at one point in after-hours trading. The company said it will take a charge against earnings for corporate restructuring in the fiscal first quarter.
Cisco CEO John Chambers, on a conference call to analysts and journalists, said the company needs to make a fresh attempt to reduce costs and refocus on new growth areas, because it is seeing uncertain demand for its networking equipment.
The company already owns more than 75 percent of the Internet networking equipment market, mainly in switches, routers and servers and accompanying services.
“The environment in terms of our business is improving slightly but nowhere near the pace that we want,” Chambers said. “It’s just not growing at the speed we want. We have to very quickly reallocate the resources.”
Chambers said Cisco will let some staff people go and move others to fast-growing divisions, such as cloud computing, data centers and mobile software markets. Yahoo Finance currently lists Cisco as having 66,639 full-time employees.
Layoffs in the past few years are nothing new for Cisco. A year ago, the company announced it was cutting 1,300 workers. In 2011, Chambers revealed a plan to cut expenses by $1 billion, which included a 15 percent reduction to its workforce. In 2009, it let 700 workers go for various reasons.
Cisco has been rechanneling its networking expertise into a set of newer products and services, specifically in mobile, cloud-computing and video. Prior to Aug. 14, the stock had been up nearly 25 percent in the last three months.