Industry News Desk
Cisco to Cut Jobs, Abandons Growth Projections
The bomb dropped during Cisco’s conference call with Wall Street after they posted a reasonably respectable fiscal third quarter
By: Maureen O'Gara
May. 16, 2011 08:00 AM
Beset by a flagging consumer business and the bottom falling out of the public sector on which it's ever so dependent coupled with competitive pressures, market share losses and pricing challenges in its core business, industry bellwether Cisco, the overextended networking giant, said Wednesday that it's going to lay people off.
It claims it doesn't know how many but it's got considerable scope considering it's got 73,408 employees. Estimates say it'll probably work out to 4,000-5,000 terminations.
The bomb dropped during Cisco's conference call with Wall Street after the company posted a reasonably respectable fiscal third quarter but predicted that its numbers would tank this quarter, normally its strongest quarter.
It figures the best it can do is earn 37 cents-39 cents on revenues that may be up 2% to $11.05 billion but will more likely be flat year-over-year. It was expected to return 42 cents, unchanged from last year, on revenues up 7% to $11.62 billion.
The company has offered its American and Canadian staff voluntary retirement and expects the exercise to cost somewhere between $500 million and $1.1 billion. It indicated it wanted to let that offer play out before it cuts deeper.
CEO John Chambers let COO Gary Moore deliver the bad news.
Both full-time staff and contractors will be hit.
Although Cisco says the terminations will be "surgical" everybody is supposed to know where they stand by the end of the summer.
Cisco means to cut a billion dollars off its run rate this quarter.
This time Chambers characterized Cisco as having a "few problematic areas" that its ongoing restructuring is meant to address but dashed any hope the company would realize its projected long-term growth rate of 12%-17%. He didn't say what it might be.
Chambers said that this quarter would show weakness "as we work behind the scenes." The company is reviewing its portfolio looking for stuff to jettison.
Wall Street expected Cisco to earn 37 cents a share on sales of $10.86 billion in fiscal Q3. In fact it came in with earnings down 18% to $1.87 billion, or 42 cents a share (non-GAAP), on revenues of $10.87 billion, up 4.8%. Gross margin fell from 63.9% to 61.3%. This year's quarter was a week shorter than last year's.
Cisco's signature switches, representing 31% of revenue, fell 9% to $3.3 billion - mostly at the high end - while routers, 17% of revenue, were up 7% year-over-year to $1.9 billion. Product sales were up 2.8%. Service revenues were up 14% and new products were up 15% but altogether it was a comparatively mediocre showing at best.
The company said that its server business, which has alienated so many of its old OEM customers, was up 1,570 customers in Q3 to 5,400 total for an annualized run rate of $900 million.
After trashing Cisco's consumer-oriented Flip video camera, laying off 550 employees and moving to simplify its complex bureaucratic management structure of "councils," which are blamed for slow decision making, Chambers claims to have a "clear game plan." Its councils are now down from nine to three and the boards that reported into them cut from 42 to 15. Sweet Lord.
There have been predictions that the continued bad news could cost Chambers his job. Cisco's stock price was down 4.78% Thursday to $16.93, an indication of how the mighty have fallen.
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