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Cisco Caution Leads to Job CutsCisco Caution Leads to Job Cuts

The numbers look impressive, but the growth projections are tempered, thousands of jobs are being cut, and investors are nervous.

August 15, 2013

2 Min Read
Cisco Caution Leads to Job Cuts

This may be the Summer of LTE, but each summer appears to be pruning time for Cisco Systems Inc., which is once again cutting jobs while the sun shines.

Despite a 6 percent increase in fiscal fourth-quarter revenues to $12.4 billion (a record quarter) and its best ever quarterly profit (after one-time costs) of $2.8 billion, the vendor giant is laying off 5 percent of its workforce, about 4,000 people.

In July 2012 the company announced it was cutting 1,200 jobs, while a year earlier, 6,500 staff were shown the door. (See Euronews: Cisco Cuts More Jobs.)

So why the headcount reduction despite the headline numbers? The growth projection of 3-5 percent year-on-year revenue growth for the current quarter represents a slow-down compared with the quarter just announced and is below the company's long-term target (5-7 percent), prompting cost-cutting measures. And shareholders got spooked too, as Cisco stock lost 7 percent of its value Thursday morning, with the share price dipping to $24.51.

Some Cisco-watchers aren't getting worked up, though, believing that the cuts are part of ongoing cost-control measures that are needed, given that Cisco is constantly adding to its workforce through acquisitions. (It made 10 in the past year across its various lines of business.)

In a research note issued Thursday morning, Mark Sue at RBC Capital Markets noted that Cisco's headcount had risen by 13 percent during the past year to just over 75,000: The vendor is "pruning products and employees in mature segments and making room for new employees from acquisitions," he wrote.

But it's not just down to housekeeping. On the earnings conference call, executives noted that the market in general is "inconsistent" and highlighted Asia/Pacific and the US communications service provider markets as areas of concern.

There's little consensus among Wall Street analysts about how Cisco's financials will play out. While George Notter at Jefferies & Company Inc. has concerns about market share loss in sectors such as core routing and set-top boxes and sees sales growth being driven by acquisitions such as Sourcefire rather than organic demand, Mike Genovese at MKM Partners believes growth rates will accelerate from here on in. (See Cisco to Buy Sourcefire for $2.7B and Cisco Buying Ubiquisys for $310M.)

— Ray Le Maistre, Editor-in-Chief, Light Reading

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