Light Reading
Cisco announced up to 6,000 layoffs as it barely stopped its quarterly revenue decline. But the SDN business is looking good.

Cisco to Ax Up to 6,000 Jobs, But It's Excited About SDN

Mitch Wagner
8/13/2014
50%
50%

SDN cast a glimmer of good news on a financial quarter in which Cisco continued to struggle, announcing plans for up to 6,000 layoffs amid steeply declining carrier demand.

Cisco halted three quarters of revenue decline, but barely, the company said in its fiscal fourth-quarter financial results announced Wednesday. Cisco delivered $12.4 billion revenue, same as the year-ago quarter. Revenue for 2014 was $47.1 billion, down 3%. (See Cisco Halts Revenue Decline – Barely.)

Net GAAP income for the fourth quarter was $2.2 billion, or $0.43 per share, compared with $2.3 billion or $0.42 per share in the year-ago quarter (in other words, overall income was down but earnings per share were up).

Revenue will be flat to up 1% in the first quarter of 2015, said John Chambers, Cisco chairman and CEO, on Wednesday's earnings call.

But, Chambers was much more optimistic about what he views as Cisco's bright prospects in the SDN era.

"For those of you out there that think SDN is going to drive down our gross margins, in my opinion, you're just wrong," Chambers said. SDN will increase gross margins for switching and architecture.

Cisco's Nexus 9000 and Application Centric Infrastructure (ACI) momentum is "on fire," Chambers said. Cisco tripled the number of customers, to over 580, since the end of last quarter. Cisco's Application Policy Infrastructure Controller has over 60 paying customers in less than a month of availability. Demand is strong among Cisco's cloud, hosting, financial services and technology provider customers. (See Cisco Ships Its SDN Architecture -- Almost.)

"We're clearly the only company out there talking about connecting applications to the infrastructure," said Rob Lloyd, Cisco president, development and sales. "And we're the only company talking about the applications not only in the context of the data center network but the entire network, including the wide area and the access layer."

He added, "When we talk about one of our competitors being a great underlay to another company's overlay, it kind of feels like being a foam pad between the hardwood floors and the carpet." That's an apparent reference to an alliance announced last week between Arista Networks Inc. , which describes its technology as an "underlay," and VMware Inc. (NYSE: VMW). (See VMware, Cisco Build Rival Data Center Teams.)

Cisco's gung ho attitude toward SDN will no doubt be good news for major customers including Goldman Sachs, which recently demanded Cisco embrace software networking. Verizon and Coca-Cola Enterprises previously made similar demands.

Cisco's service provider business declined 11% percent, with the biggest drop in video, where orders declined 13%. Service providers are dealing with business transitions and aggressively consolidating, Chambers said.

Cisco has been changing its techniques for selling to carriers, Chambers said. Cisco is focused on becoming solutions and outcomes-based, rather than just trying to sell routers and switches. But the transformation will take time to get results, he said.

Mergers and acquisitions such as Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) slow spending in the short term, as the companies assess how they will invest in the network. But in the long term, consolidation can increase opportunities for Cisco.

Carriers are struggling with their business models, having difficulty making money, which puts the squeeze on vendors, Chambers said.

"It's probably going to be tough for a little while," he said.

The company restructuring will affect up to 6,000 employees, or about 8% of Cisco's rolls, and will start in the current quarter. The restructuring will result in pretax charges of up to $700 million, about $250-$350 million of which will be recognized in the first quarter of 2015, and the remainder throughout the year, said Frank Calderoni, Cisco executive VP and CFO.


Want to know more about SDN? Visit Light Reading's dedicated SDN Architectures content channel.


Cisco's overall headcount has decreased by 1,000 from a year ago.

Cisco will work to make the reorganization a reallocation of resources, not a net reduction, and will reinvest resources in growth markets such as data center, software, security and cloud, Chambers said.

It's Cisco's fourth summer layoff in as many years. The company laid off 4,000 people a year ago, 1,300 in 2012, and 6,500 in 2011.

In other results of note:

  • Overall switching revenue was down 4% year-over year.

  • Cisco's data center business grew 30% year-over-year, gaining market share for the 18th consecutive quarter, with 41% market share for US blade servers, and a $3 billion run rate.

  • The wireless segment grew 1%. Service provider business was soft, but carriers are adopting Cisco's 802.11ac products. Cisco's Meraki cloud networking business, acquired in 2012, grew 116% year-on-year. (See Cisco Shells Out $1.2B for Meraki.)

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to wagner@lightreading.com.

(4)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
DHagar
50%
50%
DHagar,
User Rank: Light Sabre
8/14/2014 | 8:27:29 PM
Re: Cisco going to SDN
@jabailo, agreed - good analogy!

They seem to think that just moving into an SDN platform will put them in a competitive position. It is new to them, but not adding any particular value or unique capability. 

Just being in the game doesn't make you a winner.
jabailo
50%
50%
jabailo,
User Rank: Light Sabre
8/14/2014 | 3:22:28 PM
Cisco going to SDN..
Cisco going to SDN is like say a medical equipment company going to Android apps and USB peripeherals.

Where is the value added or "unique selling proposition" that stays within what is defined as Cisco?


mendyk
50%
50%
mendyk,
User Rank: Light Sabre
8/14/2014 | 1:41:13 PM
Re: Foam pads? Hardwood floors? Carpet?
It's one of those analogies that make sense if you don't think about it. I could see the pointy-haired boss in Dilbert saying this.
Mitch Wagner
50%
50%
Mitch Wagner,
User Rank: Lightning
8/14/2014 | 1:26:32 PM
Foam pads? Hardwood floors? Carpet?

I don't know what "a foam pad between the hardwood floors and the carpet" means, but I expect Lloyd meant that to be a bad thing. 

Flash Poll
From The Founder
It's clear to me that the communications industry is divided into two types of people, and only one is living in the real world.
LRTV Huawei Video Resource Center
Dr. Dong Sun Talks About Carriers' Digital Transformation & Huawei’s Telco OS

1|29|15   |   6:28   |   (0) comments


Dr. Dong Sun, Chief Architect of Digital Transformation Solutions at Huawei, discusses how telecom operators can become digital ecosystem enablers and deliver optimal user experiences that are in real-time, on-demand, all-online, DIY and social (ROADS).
LRTV Huawei Video Resource Center
Huawei's Chief Network Architect Talks about Network Experience & Operators’ Strategies

1|29|15   |   3:39   |   (0) comments


In the digital age, network experience has become the primary productivity especially for telecom operators. In this video, Wenshuan Dang, Huawei’s Chief Network Architect, discusses how carriers can tackle the challenge of infrastructure complexity in order to enhance business agility and improve user experience.
LRTV Documentaries
The Rise of Virtual CPE

1|27|15   |   01:38   |   (3) comments


As NFV strategies evolve from tests and trials to production telco networks, expect to hear a lot about virtual CPE (customer premises equipment) rollouts during 2015.
LRTV Documentaries
Optical Is Hot in 2015

1|23|15   |   01:56   |   (2) comments


Optical comms technology underpins the whole communications sector and there are some really hot trends set for 2015.
LRTV Custom TV
Policy Control in the Fast Lane

1|22|15   |   2:57   |   (0) comments


What's making policy control strategic in 2015 and beyond? Amdocs talks with Heavy Reading's Graham Finnie about the key factors driving change in the data services landscape. Find out what his policy management research reveals about the road ahead for policy control – and sign up for
LRTV Documentaries
Highlights From the 2020 Vision Executive Summit

1|21|15   |   4:33   |   (2) comments


In December 2014, Light Reading brought together telecom executives in Reykjavik, Iceland to discuss their vision for high-capacity networks through the end of the decade. The intimate, interactive meeting was set against the backdrop of Iceland's spectacular natural beauty. As one of the event's founding sponsors, Cisco's Doug Webster shared his company's ...
LRTV Huawei Video Resource Center
Huawei Pay-TV Partner Harmonic, Helping Carriers Accelerate 4K Video Deployment with Huawei

1|20|15   |   5:42   |   (1) comment


At IBC, Peter Alexander, Senior Vice President & CMO at Harmonic, speaks about the growing interest in pay-TV service and its branching into multiple devices.
LRTV Huawei Video Resource Center
Sony Marketing Director Olivier Bovis Discusses the Outlook for 4K and Cooperation With Huawei at IBC 2014

1|20|15   |   6:50   |   (0) comments


At IBC, Olivier Bovis, Marketing Director of Sony, speaks about the coming of the 4K era.
LRTV Huawei Video Resource Center
Huawei Pay-TV Partner Envivio, Helping Carriers Accelerate 4K Video Deployment

1|20|15   |   2:57   |   (0) comments


At IBC, Olivier Bovis, Marketing Director of Sony, speaks about the coming of the 4K era.
LRTV Huawei Video Resource Center
Pay-TV's Networked Future

1|20|15   |   6:29   |   (0) comments


At IBC, Jeff Heynen, Principal Analyst at Infonetics, speaks about the future of the pay-TV industry and its transition.
LRTV Huawei Video Resource Center
Jeff Heynen: Distributed Access Will Help MSOs Compete in the Future

1|20|15   |   2:26   |   (0) comments


At IBC, Jeff Heynen, Principal Analyst at Infonetics, speaks about moving to distributed access and the future trend of cable business.
LRTV Interviews
Cisco Talks Transformation

1|20|15   |   13:02   |   (0) comments


In December 2014, Steve Saunders sat down with Cisco VP of Products & Solutions Marketing Doug Webster at Light Reading's 2020 Vision executive summit in Reykjavik, Iceland. They spoke about Cisco's approach to network virtualization as well as how service providers can begin to monetize high-capacity networks through the end of the decade.
Upcoming Live Events
February 5, 2015, Washington, DC
February 19, 2015, The Fairmont San Jose, San Jose, CA
March 17, 2015, The Cable Center, Denver, CO
April 14, 2015, The Westin Times Square, New York City, NY
May 12, 2015, Grand Hyatt, Denver, CO
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 8, 2015, Chicago, IL
June 9-10, 2015, Chicago, IL
June 9, 2015, Chicago, IL
September 9-10, 2015, The Westin Galleria Dallas, Dallas, TX
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
November 11-12, 2015, The Westin Peachtree Plaza, Atlanta, GA
December 1, 2015, The Westin Times Square, New York City
December 2-3, 2015, The Westin Times Square, New York City
Infographics
Hot Topics
Google Continues Gigabit Expansion
Jason Meyers, Senior Editor, Gigabit Cities/IoT, 1/27/2015
BlackBerry Wants Net Neutrality Protection – That's Just Sad
Mitch Wagner, West Coast Bureau Chief, Light Reading, 1/22/2015
Cablevision's New WiFi Try – Freewheeling Enough?
Mari Silbey, Independent Technology Editor, 1/26/2015
Overture Builds on NFV Foundation
Mitch Wagner, West Coast Bureau Chief, Light Reading, 1/27/2015
LightSpeed Looks to Plug the Gigabit Gap
Jason Meyers, Senior Editor, Gigabit Cities/IoT, 1/23/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Weekly Executive Interview
Join us live for Light Reading's interview with Jay Samit, the newly appointed CEO of publicly traded SeaChange International Inc. With a resume that includes Sony, EMI, Universal, Intel and Microsoft, Samit brings a reputation as an entrepreneur and a disruptor to his new role at the video solutions company. Hear what he has to say about the opportunities in video, as well as the outlook for cable, telco, OTT and mobile service providers.