Cisco Systems Inc. seems to have taken a turn for the better this year, but it's facing a new problem: attrition in engineering, according to one analyst.

"Competitors seem to be hiring away Cisco engineers at a high rate, and in addition to losing mid-level engineers, Cisco is starting to lose its limited 'Distinguished Engineers,'" Mark Sue of RBC Capital Markets writes in a report issued Monday.

As much as people talk about Cisco as a marketing machine, it really does depend on a strong engineering force. Engineers comprise about one-third of the company's more than 63,000 employees, Sue writes.

He writes that it's happening because Cisco's restructuring created "rifts" in the organization. Cisco laid off some staff earlier this year and reassigned some of the employees who were kept on.

Cisco sent Light Reading an official statement saying, in effect, that any ongoing attrition is a fact of life, and the company is willing to hire people to fill any gaps:

Cisco has been forthright about the changes that it needs to make to its business to drive profitable growth and productivity. We continue to act quickly and decisively to execute these changes. As part of this evolution, we expect departures. Our action plan addresses the opportunity to strengthen our leadership bench with both internal and external talent.

"Cisco has begun to acknowledge the problem, which is an important start to stemming the departures," Sue writes in his report. His suggestions: Give engineers a deeper sense of purpose by bringing them more intimately into the product-development cycle, and put engineering under the lead of just one executive, namely, Senior Vice President Pankaj Patel. He's been co-leading engineering with fellow Senior Vice President Padmasree Warrior.

Sue's report doesn't overtly suggest that Cisco is doomed or even sinking. But he does think the engineering thing is important. "For Cisco to be successful, it needs to excel in both sales and engineering," he writes (emphasis is in the original).

For more
Keep up with Cisco's reorg and recovery:

• Cisco's Comeback Quarter
• Cisco Says It's Ready to Fight
• Cisco Cuts Down on Councils
• Cisco Shuffles Organizations

— Craig Matsumoto, West Coast Editor, Light Reading