Optical/IP Networks

Cisco Preps for Layoffs

Cisco Systems Inc. (Nasdaq: CSCO) is definitely going to have layoffs this year.

"It is not something we take lightly, and we will communicate exactly what these decisions will mean to our employees by the end of summer," said Gary Moore, Cisco's chief operating officer, speaking on Wednesday's earnings call.

The cuts are going to affect Cisco worldwide and will include full-time and contract workers. Specifics won't be determined until Cisco sees how its early-retirement offer is going.

Moore's presence on the call was unusual to begin with, and he got to speak before Cisco executives went into the usual financial details of an earnings call. It just shows that the reorganization is the headlining item at Cisco these days; the company had to know that layoffs would be one of the top topics of discussion if executives didn't bring it up.

For its third quarter, which ended April 30, Cisco reported profits that beat expectations but were still down from last year's. (See Cisco Reports Q3 and Cisco's Profits Shrink in Q3.)

And things won't recover right away. Cisco expects revenues for the fourth quarter, which ends in July, to be $10.8 billion to $11.1 billion, barely higher than last year's fourth quarter. Analysts polled by Thomson Reuters were expecting $11.6 billion.

In introductory remarks, Chambers tried to convince investors that he's addressing what are now considered systemic problems. He reiterated, for instance, that Cisco is simplifying its management structure, scuttling the councils and boards that many (outside and inside Cisco) found confusing.

Switching, a franchise area for Cisco, continues to be a problem. Switching revenues fell 9 percent compared with last year's third quarter, partly due to a clumsy customer transition to the Nexus 7000 from the flagship Catalyst 6500. Cisco is hoping a recently announced batch of switches will right things.

Moore said Cisco is reconsidering its product lines and will cut more products -- including some tradeoffs as Cisco tries to preserve both short- and long-term prospects. So far, in addition to Flip, Cisco has killed off some of its weaker products in home networking.

But home networking, in general, remains part of Cisco's overall video vision. While taking the heat for areas such as switching (where third-quarter revenues were down 9 percent compared with last year), Chambers unapologetically said Cisco will stick to its video strategy, including the home network and next-generation set-top boxes.

For more
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— Craig Matsumoto, West Coast Editor, Light Reading

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paolo.franzoi 12/5/2012 | 5:05:31 PM
re: Cisco Preps for Layoffs

I wonder if they are trying to get enough voluntary attrition to lessen the need for redundancy elimination.




Pete Baldwin 12/5/2012 | 5:05:31 PM
re: Cisco Preps for Layoffs

Further notes from the call. It sounds like:

* Cisco wants to do one big layoff, pull the band-aid off quickly

* Cisco will tell the employees everything before announcing the plan

* Cisco won't announce a layoff number without announcing the whole plan; Chambers wants to avoid saying "one big number" and having everyone speculate on how much gets cut where.

So, the plan gets revealed probably late in the summer. Our former boss, Scott Raynovich, reacts thusly: "Um, have a nice summer?" http://twitter.com/#!/rayno/status/68424859545382912

boozon 12/5/2012 | 5:05:30 PM
re: Cisco Preps for Layoffs

"Why wait till the end of summer?"

From an employee perspective, I couldn't agree more with you.

However -I am just speculating here- I suppose that the Cisco management felt that it was urgent to send a strong message to Wall Street. The employees come after. As usual.


Stevery 12/5/2012 | 5:05:30 PM
re: Cisco Preps for Layoffs

OK, Kudos to Chambers with one exception.  Ripping the band-aid off quickly and all at once prevents the long slow decline of morale I've seen at too many places.

But I concur with Scott:  Why wait till the end of summer?  Give everyone 3 months to politick instead of work?  That part is a mistake.

DCITDave 12/5/2012 | 5:05:29 PM
re: Cisco Preps for Layoffs

I guess there's no right answer to how to handle a layoff well and still keep Wall Stree happy. Chambers wants to avoid saying "one big number" and having everyone speculate on how much gets cut where. But my feeling is that by avoiding the announcement of one big number, you open up the media to supply several big numbers, each one more frightening than the next.


Duh! 12/5/2012 | 5:05:28 PM
re: Cisco Preps for Layoffs

Ah, the blood ritual of Corporate America.  Have a bad quarter, expiate your sins by sacrificing a bunch of employees to the Wall St. gods.  Never mind that few, if any, of the people leaving had anything to do with creating the problem.  The gods demand blood.

Only problem is that it doesn't work.  All it does is distract the organization, lose talent, and destroy morale.  Every once in a rare while, a CEO does not do what the Wall St. gods expect; the stock price takes a temporary hit, but comes back then the fundamentals recover.  And the fundamentals do recover faster when the organization is fully engaged in making them recover.

I used to think that Chambers had the quality of leadership to pull that off;  now, obviously not.

Pete Baldwin 12/5/2012 | 5:05:28 PM
re: Cisco Preps for Layoffs

Stevery has a point that this just opens up a few months of political posturing. I think what they're waiting for is the voluntary retirement program.  I can't recall offhand what the cutoff date for that was.

basiabasia 12/5/2012 | 5:05:27 PM
re: Cisco Preps for Layoffs

Cisco is not immune to poor quality management and China "competition".

On both fronts Cisco is a looser.

The most important part is squeezing more functions into chip.

Cisco has not much of a clue about it.

British telecom selected Huawei.

I worked at NorTel and they were way more advanced than Cisco in optical networking and they had quite a bit of wireless and Cisco here is exeptionally backward.

The only product they tried to introduce was a core switch 6500.

You do not start to rebuild company with expensive core product while the rest is of problematic market traction.

Management bla bla is not enough.

I run R&D company in VLSI test still in early stage and plan to go to financing. Stupid or not my product hits an acute market discontinuity. Bellwether like Cisco will share now unfortunately the face on Lucent and alike.

MPP *is* parallel.. 12/5/2012 | 5:05:27 PM
re: Cisco Preps for Layoffs

Competition is finally eating away at Cisco's traditional 70% margins.  Now that more folks have come to realize that networking really is a commodity market, Cisco has to change its spots or die.  JC has got to be wondering what he was thinking jumping into the server market.

Rush21120 12/5/2012 | 5:05:27 PM
re: Cisco Preps for Layoffs

While big lay offs aren't typical at Cisco the layoff model is the same.  I worked recently for Cisco for 9yrs and the model is the same.  Generally, large layoffs are no different as Cisco gives 3 months severance.  You can take the severance leave immediately or stay up to 2 months with access to Cisco to look for another role.  Cisco works on a Fiscal calendar where August is end of the fiscal calendar so getting this on the 2011 books is why the now.  The question will be the size, generally if it's large I would predict 1000's, however in some cases Cisco offers new roles 10-15% of the affected.  This is good but problematic as most are in San Jose (they have a contractual agreement) and there is no corporate travel assistence, while typically even if you apply you won't be considered.  I've seen at least 3 of these during my tenure with Cisco, not a happy event and it picks numbers not talent. 

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