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.
Cisco to Cut 6,000 Jobs as Transformation Continues
Cisco late last year unveiled its Application Centric Infrastructure (ACI) initiative to address the demand for more software-defined data center solutions, and the company last month announced it would start shipping its Application Policy Infrastructure Controller (APIC) and other parts of the ACI portfolio at the end of July. During the conference call, Chambers said the company is seeing a lot of interest in ACI and the Nexus 9000 switch, which is at the heart of Cisco’s SDN efforts. By the end of the quarter, the vendor had 580 Nexus 9000 customers.
Chambers pointed out other areas where Cisco is growing. The data center business saw revenues jump 30 percent, and the UCS solution now has 36,500 customers and a run rate of $3 billion, and has driven Cisco to the top of the list of x86 blade server vendors in the United States. Security revenues increased 29 percent, and the company is getting a lot of interest in its Intercloud strategy, which officials have described as a series of interconnected private, public and hybrid clouds that run atop Cisco infrastructure. The company in May announced it will invest $1 billion in the effort over the next two years, and its partnering with other companies—such as Microsoft—to further its cloud ambitions.
Such efforts in new products and high-growth areas will help drive Cisco’s sales growth in the future, according to Scott Dennehy, senior analyst with Technology Business Research.
“Cisco remains focused on its long term growth strategy, investing in high growth areas such as cloud, security, and SDN, even though the investments may not bear fruit in the short term,” Dennehy wrote in a research note. “For example, the company added 2,000 employees to its Intercloud division over the past four quarters, but it will be several years before Intercloud contributes to Cisco’s revenue in a meaningful way.”
At the same time, Cisco continues to try to shore up struggles in such areas as collaboration and in emerging markets, such as the BRIC (Brazil, Russia, India and China) regions. The networking vendor saw 2 percent revenue growth in both the Americas and the Europe, Middle East and Africa regions, but the Asia-Pacific region saw sales decline 7 percent.