Cisco Throws 5,500 Overboard on Cruise to Richer Waters

Resumes a grim summer layoffs tradition.

Mitch Wagner, Executive Editor, Light Reading

August 17, 2016

5 Min Read
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

About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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