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Cisco CFO: More Cuts Needed

Light Reading
News Analysis
Light Reading
2/27/2002
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In a speech to investors in Tokyo early today, Larry Carter, CFO of Cisco Systems Inc. (Nasdaq: CSCO), cited the importance of reducing the company's operating expenses even more, though signs are good that the "recession may be coming to an end" in the U.S.

Early wire reports that inferred Carter meant layoffs were incorrect, say Cisco spokespeople back in San Jose. Indeed, during the conference Webcast, Carter made no reference to any plans to cut jobs further.

"There are no plans for additional layoffs at this time," says spokeswoman Terry Anderson. Cisco, which reported its earnings February 6, is looking at ongoing cuts in discretionary spending, such as travel costs and temporary workers, she says, and there's no news in that (see Cisco Beats Street; Growth is Flat). But she acknowledges that Cisco isn't immune to economic conditions.

Carter noted that Cisco's headcount has been reduced by roughly 6,275 since the second quarter of 2001. Today, the company has 36,786 workers. Carter says the company now has an annual revenue per employee of $518,000 but wants to see that figure climb to $700,000 per employee, close to where it was in the first quarter of 2001.

During the financial portion of his talk, Carter pointed to a "modest recovery and some progress in getting our growth back on track." A bit later he stated, "Our operating expenses need to get down further," but he didn't specify how this might be done. He said progress has been made in Cisco's restructuring plan, which included a worldwide workforce reduction, but there are ongoing efforts to reduce spending. Directly afterward, he said the company would like to see its ratio of operating expenses as a percentage of revenue move from the mid-30s to the 20 percent range.

Highlights from the rest of Carter's talk:

  • Macroeconomy's a mixed bag. Carter acknowledged the ongoing challenges of the global economy, but he said Cisco sees signs of recovery in the U.S. enterprise market, though he thinks CEOs will remain conservative, waiting for their own profitability to return before ramping up their capex once again.

    The carrier market, he noted, is still in recession, and he cited analyst forecasts that spending in that sector will dip 20 to 25 percent more this year. He also acknowledged the carrier portion of Cisco's sales is considerably lower than last year, when service providers accounted for about one-third of the company's revenue. This seems to be in keeping with analyst claims that Cisco's making inroads again in the enterprise market, upping its share figures a bit (see Cisco's See-Saw Day, Report: Core Router Market Falls 22%, and Juniper Sinks in Market-Share Scare).

  • IP, optical networking are key. Carter named Core IP routing and Layer 3 switching, optical networking, content delivery, voice over IP, wireless LAN, and storage -- in that order -- as strategic areas for Cisco this coming year. Regarding optical networking, he was explicit about the company's focus on metropolitan area networking, versus long haul, where he says there's little opportunity for Cisco right now. And as for storage, he referred to Cisco's "new product for the interconnection of storage with data networks."

  • No more early-stagers. Echoing a speech earlier this year by Cisco CEO John Chambers, Carter said Cisco will pursue a more conservative approach to buying other companies (see Cisco's Appetite for Startups Shifts). "Look to 8 to 10 acquisitions over the next 12 months. I think our focus will be on smaller companies, where product is more mature or customer endorsed." He said size, geographic location, and the ability to be "immediately accretive" to Cisco earnings would also be factors in M&A this year.

  • Guidance flat. Carter maintained guidance for the present quarter "flat to up slightly," but he warned that the following third quarter has been "traditionally very challenging" for Cisco.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
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butch_rag
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butch_rag,
User Rank: Light Beer
12/4/2012 | 10:52:25 PM
re: Cisco CFO: More Cuts Needed
..frugally ?
The_Holy_Grail
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The_Holy_Grail,
User Rank: Light Beer
12/4/2012 | 10:52:00 PM
re: Cisco CFO: More Cuts Needed
This post IS NOT directed at Cisco spefically, but rather the industry in general.

Just curious. Does anyone think this is real or just a ploy to get more work (and longer hours) with fewer employees?

So if CSCO says cuts the workforce by 'x' amount and gets remaining employees to work an extra 10 hrs more a week, then won't the competition follow suit continuing this downward spiral until it has driven the intelligent employees into another career field? Next thing you know, employees might be asked to take pay cuts. This approach solves nothing.

Are we turning this industry into a slave labor workforce? Just something to ponder.
The_Holy_Grail
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The_Holy_Grail,
User Rank: Light Beer
12/4/2012 | 10:51:59 PM
re: Cisco CFO: More Cuts Needed
What % or how many?
Vesting
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Vesting,
User Rank: Light Beer
12/4/2012 | 10:51:59 PM
re: Cisco CFO: More Cuts Needed
rumor has it that the next round of cuts comes March 8th.
butch_rag
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butch_rag,
User Rank: Light Beer
12/4/2012 | 10:51:57 PM
re: Cisco CFO: More Cuts Needed

You're right, it does solve nothing. In fact it may make things worse. This "motivation by fear" works only for the mediocre and sub-mediocre performers who - at best - matter only at the margins. The better performers are hardly ever intimidated as they always have options and may choose to excercise them - leave the company that is - rather than suffer the indiginity of this affront.

BTW this strategy is being increasingly adopted by the lemming like startups. And all it does is hasten their inevitable demise.

Cheers.

>So if CSCO says cuts the workforce by 'x' amount >and gets remaining employees to work an extra 10 >hrs more a week, then won't the competition >follow suit continuing this downward spiral >until it has driven the intelligent employees >into another career field? Next thing you know, >employees might be asked to take pay cuts. This >approach solves nothing
asmo
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asmo,
User Rank: Light Beer
12/4/2012 | 10:51:57 PM
re: Cisco CFO: More Cuts Needed
I seriously doubt that there will be a layoff as CSCO have just recently paid out a bonus to its workforce. It doesn't make sense to pay a bonus to everyone because the company is doing well and lay people off at the same time.

If there is a reduction in workforce it will probably be targeted at the individuals management perceives as being in the bottom 5% of under performers, this is standard practice at CSCO.

I think what Larry Carter was referring to was cutting discretionary spending.

A.
The_Holy_Grail
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The_Holy_Grail,
User Rank: Light Beer
12/4/2012 | 10:51:55 PM
re: Cisco CFO: More Cuts Needed
Motivation by fear loses in the end. At the first sign of an uptick, hemmoraging will be rampant. Companies may think that when the good time return that they can spend lavishly to retain employees. However, most employees have scars that very deep and will have an exit strategy. My guess is, either a 'HR' consultant or company HR person is making policy with ignorance.

It takes a life time to develop loyalty, but only seconds to lose it.

Good luck folks what ever the truth may be.
shocked!
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shocked!,
User Rank: Light Beer
12/4/2012 | 10:51:50 PM
re: Cisco CFO: More Cuts Needed
It's worse than that. Area's of the company have "old world", hired typically in the boom of 2000 thru early 2001, managers running around practicing CYA at the expense of the good, experienced and knowledgable employee's. God forbid that they may actually lose their jobs, but not before they've culled their depts to save their own necks first.

The scars are building up now and healing them is going to be hard while these guys continue to opress the teams.

The danger of the bottom five is that say the wrong thing and your there, the ranking system is not working well and is being abused.

So it stems from more than just HR.

Part of the truth revealed...
tink
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tink,
User Rank: Light Beer
12/4/2012 | 10:51:46 PM
re: Cisco CFO: More Cuts Needed
I don't think this message is aimed at employees at all, but at analysts. Carter seems to be trying to placate the analysts who, sooner or later, would notice that CSCO is employee-heavy and would begin to ponder the collapse of CSCO under its own weight. His spin is that somehow expense control can be achieved without layoffs. Other companies have simply hacked away at the employee base and satisfied the balance sheet watchers. Wonder if CSCO should do the same?
Lopez
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Lopez,
User Rank: Light Beer
12/4/2012 | 10:51:44 PM
re: Cisco CFO: More Cuts Needed
If there is a reduction in workforce it will probably be targeted at the individuals management perceives as being in the bottom 5% of under performers, this is standard practice at CSCO.

The problem with this is that you trim the bottom 5%, then trim again, then trim again. Pretty soon you've trimmed the bottom quarter.

Chambers has said he wants $700K/employee and then $1M/emp. I think it is safe to say that until those numbers are met, Cisco will not grow. If they get worse then layoffs may happen again.
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