Cisco Circles the Wagons in Texas

RICHARDSON, Texas -- As part of an attempt to save money during the economic slump, Cisco Systems Inc. (Nasdaq: CSCO) is reportedly going to let two of its planned seven buildings here remain unfinished. The hollowed interior of one building and the bare foundation of another will embody just how quickly the firm that was once the world's most valuable company was overtaken as the economy began its downward spiral.

Last Friday, The Dallas Morning News reported that Cisco will not complete two of its new buildings at its campus along State Highway 190. When contacted by Light Reading, Cisco spokesman Chris Peacock said he had read the story and that he could not go on the record and confirm the report to be true.

On Monday, Cisco gave analysts a business and financial update, by which it announced more layoffs and significantly lowered profit and revenue expectations for the next three to six months. Part of the $800 million to $1.2 billion restructuring charge Cisco will take against its third quarter earnings includes between $300 million and $500 million in "excess facilities charges." (See Cisco Projects Revenue Dip.)

Cisco hasn't officially said to what extent it's paring back its expansion plans here, but it stands to reason that its retreat will be considerable. For one thing, the heart of Cisco's operations here -- its wavelength router business unit -- has been shuttered with the cancellation of the ONS 15900 product. That product was brought to Cisco through its acquisition of Monterey Networks, a startup with more than 200 people.

At a North Dallas Chamber of Commerce telecommunications conference in December, Cisco executives told those assembled that the company's Richardson presence would be spread throughout seven brand new buildings on a sprawling 78-acre campus.

The new digs were going to house some 6,000 employees, many of whom would work for Cisco's service provider business unit. About seven of the planned campus's 20 floors were going to be devoted to research and development, primarily for optical networking, executives said.

The Richardson area is still a "key part of Cisco's future," Peacock says, but he adds that Cisco is adjusting "the timing and scale" of its expansion here. He says Cisco will begin to occupy some of the new buildings on its campus here this summer and, in doing so, will consolidate some of its other area offices.

The technology areas that Cisco will continue to house here include long-haul DWDM (dense wavelength-division multiplexing), wireless networking, and VOIP (voice over IP).

Prior to Cisco's ongoing layoffs, the company employed about 1,500 people in Richardson and about 44,000 worldwide.

-- Phil Harvey, Senior Editor, Light Reading http://www.lightreading.com
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lightsoul 12/4/2012 | 8:33:12 PM
re: Cisco Circles the Wagons in Texas Is things are that bad for Cisco? I'm keep seeing negative news about the company... it looks like its in real big trouble....?

Steve Saunders 12/4/2012 | 8:33:10 PM
re: Cisco Circles the Wagons in Texas justcurious,

that's an interesting point of view. However, there are a lot more disimilarities between Nortel and Cisco than there are similarities.

I'm writing a column about the prognosis for Cisco and hope to have it on the site this week.

justcurious 12/4/2012 | 8:33:10 PM
re: Cisco Circles the Wagons in Texas The same thing happened at Nortel before due to impressive growth from last year: being blinded by optimistic forecasts,ignoring or misreading crucial warning signs that sale forecasts were too ambitious (including a growing sector of dotcoms now is either dead or badly wounded), continuing to expand aggressively even business slowed. They are running fast so when collision happen, the damage was pretty bad. In the end, John Chambers does not have the magic this time
loosemoose 12/4/2012 | 8:33:09 PM
re: Cisco Circles the Wagons in Texas Really good front page article in today's WSJ about how Cisco got into its current state. Summing it up - too much exhuberance from managers and not listening to their suppliers. Cisco had some warnings to what was coming around the corner, but didn't slow down when they had the chance.

BTW, looks like their two newest buildings will be completed in a couple of months. Maybe they can lease space out to Fujitsu or Alcatel.
noitall 12/4/2012 | 8:33:09 PM
re: Cisco Circles the Wagons in Texas don't forget the fact that they financed the clecs, had very questionable accounting practices, managed their earnings (illegal), had no innovation strategy, acquired a bunch of stuff that doesn't remotely look like a platform, tried to build an h-p like company in a fast moving market, etc. cisco is screwed for at least 2 yrs and now the shine has come off the star. so what you have is something that is fundamentally flawed. their growth drivers were the stock price and the acquisition strategy and now that one is stalled so is the other and there's nothing backing up those strategies. chambers is a genius though, so watch for him to re-invent the company over time. will be ugly in the near term.
cfaller 12/4/2012 | 8:33:09 PM
re: Cisco Circles the Wagons in Texas I believe that now that the service providers (i.e. the market for Cisco, Lucent, Nortel, etc.) are starting to pinch their pennies, the telecom equipment sector will start to become horizontally integrated, rather than vertical.

The telecom sector will start to resemble the PC industry. There will be competition and leaders in every section of equipment- core switches, DWDM, routers, muxes, etc.

The idea that Cisco, Lucent, Nortel, or anyone can deliver what the service providers want for every major piece of equipment will no longer hold water with Wall Street. The days of the "Cisco Powered Network" are over.
eyesright 12/4/2012 | 8:33:08 PM
re: Cisco Circles the Wagons in Texas It will be a redux of what happened with IBM and the *mainframe* industry. Advent of cleint server architectures, movement to other component manufacturers, horizontally integrated.

Right on...
pdseeker 12/4/2012 | 8:33:08 PM
re: Cisco Circles the Wagons in Texas The man with the strings at Cisco is John Morganthal..these guys have been reading aobut their dominating market share in the "last gen" IP router market for 10 years. Their gas for that market won't power the network motor anymore. Cisco is a software company dressed up in hardware. Their getup and go got up and went when it became clear optical networking, not electronic networking, was network mechanism for the future. If they cannot populate the infrastructure with IOS enabled "electronic" routers they have very little that is attractive to the big service providers.
They will suck wind for a while. Don't be surprised to see a retreat strategy with some shedding of "non-core" business's this year.
gardner 12/4/2012 | 8:33:07 PM
re: Cisco Circles the Wagons in Texas Although times are tough all over in the telecom industry I think that Cisco's problems are fundamentally different from those of some of the traditional telecom players. Understanding the difference is probably a good lesson for all of us. Hubris played a much greater role in Cisco's spectacular reversal of fortune. Let's recall the fanfare with which Cisco entered Richardson's Telecom Corridor less than a year ago. They were going to take the telecom industry by storm. The traditional companies were way too cautious and stodgy. Cisco was going to show those old "farts" what a bold young internet company could do with all that overheated stock market "monopoly money". They were going to build a huge campus, populate it with people they hired away from the traditional telecom equipment manufacturers (with stock options that are now so far under water that Robert Ballard couldn't find them) and then they were going to show the rest of us how it was done "in internet time". Now Mr. Chambers and company are getting an important lesson in the value of caution and stodginess and the price of hubris. ;-) The good news is that a lot of the old line telecom companies learned from the successes and mistakes of their younger competition and I think we are all better off for it. Even the European companies are giving stock options these days and cost cutting and efficiency are the watch words of the day. In the end I hope Cisco will be able to do well in this market but they will be humbler and wiser when (if) they do.

Next lesson will be for the optical startups that are so sure that telecom is easy pickings if you are young enough, bold enough, and breath enough of your own helium. ;-)
take4freein 12/4/2012 | 8:33:06 PM
re: Cisco Circles the Wagons in Texas I am offered a job from alidian. What do you think about them. Is this the right time to join. How much stocks I should ask for?
Any insight info will be helpful.
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