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Cisco Throws 5,500 Overboard on Cruise to Richer Waters

Cisco said Wednesday it is eliminating 5,500 positions, 7% of its workforce, as part of an ongoing shift to recurring, software-based revenue models and the cloud.

That's not as bad as expected. CRN reported Tuesday that Cisco would be laying off 14,000 employees -- nearly a fifth of its workforce of 73,000. (See Cisco Set to Cut 14,000 Jobs – Report.)

Cisco CEO Chuck Robbins said Wednesday that Cisco plans to reinvest the benefits of the layoffs in its growth businesses -- security, Internet of Things, collaboration, next-generation data center and cloud. The company will recognize up to $700 million in pre-tax charges for the reorganization, according to a regulatory filing Wednesy. Layoffs will start in the first quarter of fiscal 2017, recognizing $325 million to $400 million of the charges then, with the remainder throughout the year.

Robbins put a positive face on things. ""We had another strong quarter, wrapping up a great year," he said in a statement. (There are 5,500 people who would disagree with that assessment.) (See Cisco Laying Off 5,500 on Flat 2016 Revenue.)

This year's layoffs resume a grim tradition at Cisco, which has laid off positions at the end of its fiscal year for four consecutive summers, ending in 2014, with 6,000 axed in the final round. At that time, Cisco also executed an ambitious reorganization of its engineering department, designed to break down barriers between product lines and business units. (See Troubled Cisco Looks to 'Bust Silos' .)

GAAP revenue was $12.6 billion for the fourth quarter ending July 30, compared with analyst estimates of $12.57 billion, excluding service provider video CPE business, which Cisco sold to Technicolor in a deal that closed November 2015. Quarterly revenue was up 2% year-over-year. (See Cisco Sells STB Unit to Technicolor for $604M and Technicolor Closes on Cisco Set-Top Business.)

Both service provider and emerging markets "turned negative" in the fourth quarter, "with orders down 5% and 6% respectively [year-over-year]," but "the remainder of the business remained healthy with orders growing 5% y/y," the company said in slides accompanying the earnings presentation.

Over the long term, Cisco doesn't expect service provider traffic to decline, as video loads in particular increase. "But we also know that in uncertain times customers tend to sweat assets as long as they can," Robbins aid.

In the UK in particular, customers are paused, facing uncertainty over Brexit and currency devaluation, Robbins said.

Cisco saw strong performance in security, data center switching, collaboration and services, "as well as continued success in the transition of our business model to software and subscriptions," the company said.

Software and subscription revenue grew 33% in the fourth quarter, Robbins said. It's up to 28% of revenue, compared with 25% in the year-ago quarter.

The cloud is helping drive growth in Cisco's software-defined networking business, the Application Centric Infrastructure. The annualized run rate for ACI is more than $2.3 billion, up 36% in the fourth quarter.

Non-GAAP net income was 3.2 billion for the quarter, up 7% year-over-year, and earnings per share was $0.63, up 9%, compared with analyst expectations of $0.60.

For the full year, GAAP revenue excluding SP video CPE was $48.7 billion, up 3% year-over-year, compared with analyst estimates of $49.15 billion; non-GAAP net income was $12 billion, up 7%, and earnings per share was $2.36, up 8%.

For the first quarter of 2017, Cisco's outlook is -1% to 1% growth year over year, and non-GAAP earnings per share of $0.58 to $0.60.

Cisco traded at $30.33 down 1.27 percent after hours.

By segment, Cisco reported its service provider video business was down 12% year-over-year for the quarter, to $444 million, but up the same percentage year-over-year, to $1.92 billion. That excludes SP video CPE business revenue. Next generation network routing was down 6% year-over-year for the quarter to $1.876 billion, and 4% annually, to $7.4 billion. Some 50% of router business comes from service providers, which is a soft market worldwide., Robbins said.

The switching business was up 2% year-over-year for the quarter, to $3.974 billion, but flat annually, at $14.746 billion. Collaboration and wireless were both up, while data center was down 1% year-over-year for the quarter, to $873 million, and up 5% year-over-year, to $3.365 billion.

The security business was a big winner, to $540 million, up 16% year-over-year, and up 12% annually, to $1.92 billion.

Cisco has been busy making sweeping changes since Robbins took over as CEO a year ago. It launched a deep and broad partnership with Ericsson AB (Nasdaq: ERIC), combining Cisco's IP portfolio with Ericsson's mobile and radio lines an services. (See Cisco Takes Ericsson Home to Meet the Family and Cisco & Ericsson Forge Killer Partnership.)

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Ericsson replaced CEO Hans Vestberg last month, following poor financial results and falling stock price. CFO Jan Frykhammar is stepping in while the Swedish vendor looks for a permanent replacement. (See Ericsson Ejects CEO Vestberg.)

Also during Robbins's tenure, Cisco reorganized around cloud, software, recurring revenue and networks on demand, with sweeping changes to top management. (See Cisco Builds Its House on the Cloud, Cisco's Ahuja Quits as Robbins Revamps His Top Team, The Future Is Networks on Demand, Says Cisco Chief Architect and Cisco's 'Spin In' Innovation Team Spins Out.)

Acquisitions include the company's $1.4 billion buyout of IoT cloud provider Jasper Technologies, to help enterprises pivot from product sales to recurring service products, and help Cisco do the same. (See Cisco Looks to Jasper Acquisition to Transform Enterprises – & Itself.)

Cisco also acquired CloudLock to beef up its cloud monitoring and security portfolio. (See Cisco Buys Startup CloudLock for $293M.)

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— Mitch Wagner, Follow me on TwitterVisit my LinkedIn profile, Editor, Light Reading Enterprise Cloud

Mitch Wagner 8/19/2016 | 4:07:24 PM
Re: The meek will NOT inherit the earth Indeed yes. 

These kind of hair-trimming layoffs quite frankly make me angry. But certainly a company foundering is worse for all employees. 

And the employees who are let go can point to their tenure at Cisco with pride. That's harder when you're leaving a company that has an unsuccessful reputation. 
rocket101 8/18/2016 | 3:42:22 PM
Re: New World Order Not so soon. How much of the 12.6 billion in revenue came from SW/open source? Theykeep mentioning software, softwar, software.......How much revenue came from selling Hardware and how much from software? Majority of the revenue is still coming from selling Hw based Routers and Switches + other hw based equipment. 

alangonchar 8/18/2016 | 3:13:54 PM
The meek will NOT inherit the earth Cisco will survive and flourish because of their culture of questioning everything and making the tough decisions.

Their shareholders and the remaining 93% of their employees need to be taken into account as well.

Watch closely as other organizations like Dell and Oracle follow suit with much larger numbers of layoffs/firings/early retirement.

This is not a cruise to richer waters at all - it's more of a survival journey.
Mitch Wagner 8/18/2016 | 2:40:09 PM
Re: Ciscosson on the back foot Indeed, it's hard to make any kind of long-term commitment to an employer when the employer isn't doing the same for you. 
Duh! 8/18/2016 | 12:07:43 PM
Re: New World Order Or Cisco could have taken the initiative to re-skill their human capital to meet changing business needs.  As AT&T has been doing, to their immense credit.
sarcher60555 8/18/2016 | 10:56:34 AM
Re: New World Order Open source is the death of Cisco and other Hardware heavy companies.
Alison_ Diana 8/18/2016 | 9:59:29 AM
New World Order It's always difficult to think of the people behind the numbers, but business-wise this makes sense. For the past couple of years or so, pundits have pointed out the workforce shifts that will come from an as-a-service world -- and one of the biggest is the declining number of people necessary. It's also reflective of Cisco's changing model, as Mitch wrote. Once heavily reliant on hardware, Cisco no longer needs some of the skills it previously nurtured. My heart goes out to those who lost their jobs and I hope they find new positions soon, perhaps by taking on education in software, security, big data or other specialities in high demand (and salaries!).
[email protected] 8/18/2016 | 3:25:13 AM
Ciscosson on the back foot With Ericsson awaiting a new CEO and having a new cost-cutting [program in place, and now Cisco staff spending 4 monitsh wondering if their names will be on the hit list, there's going to be a lot of uncertainty within the ranks....

I expect rivals will be taking the opportunity to become more aggressive in both competitive offers and in terms of headhunting.
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