Cisco Systems Inc. (Nasdaq: CSCO) seems to have taken a turn for the better this year, but it's facing a new problem: attrition in engineering, according to one analyst.

"Competitors seem to be hiring away Cisco engineers at a high rate, and in addition to losing mid-level engineers, Cisco is starting to lose its limited 'Distinguished Engineers,'" Mark Sue of RBC Capital Markets writes in a report issued Monday.

As much as people talk about Cisco as a marketing machine, it really does depend on a strong engineering force. Engineers comprise about one-third of the company's more than 63,000 employees, Sue writes.

He writes that it's happening because Cisco's restructuring created "rifts" in the organization. Cisco laid off some staff earlier this year and reassigned some of the employees who were kept on.

Cisco sent Light Reading an official statement saying, in effect, that any ongoing attrition is a fact of life, and the company is willing to hire people to fill any gaps:

"Cisco has begun to acknowledge the problem, which is an important start to stemming the departures," Sue writes in his report. His suggestions: Give engineers a deeper sense of purpose by bringing them more intimately into the product-development cycle, and put engineering under the lead of just one executive, namely, Senior Vice President Pankaj Patel. He's been co-leading engineering with fellow Senior Vice President Padmasree Warrior.

Sue's report doesn't overtly suggest that Cisco is doomed or even sinking. But he does think the engineering thing is important. "For Cisco to be successful, it needs to excel in both sales and engineering," he writes (emphasis is in the original).

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— Craig Matsumoto, West Coast Editor, Light Reading