Cisco to Lay Off More Than Anticipated

Though it runs counter to recent headlines about the company’s aggressive pursuit of new markets in this down economy, analysts reportedly are saying that Cisco Systems Inc. – the world’s largest maker of computer networking equipment – are facing the likelihood of sweeping layoffs.
According to this story by Scott Moritz of The, a research report from JP Morgan analyst Ehud Gelblum is calling for a 17 to 22 percent year-over-year decline in fourth-quarter revenues from the San Jose, California-based IT bellwether.

“We believe Cisco could also announce a 10 percent headcount reduction, which we calculate could save $900 million annually,” Gelblum reportedly said.

If true, the rumors would mark the first major concession that Cisco has made to the recession since December, when the company shut down operations for five days to cut costs – the first shut-down in Cisco’s 24-year history.

Cisco had about 66,000 employees at the end of 2008.

When reached by TMCnet, a Cisco spokesperson said the company does not comment on speculation or rumor. The spokesperson also referred TMCnet to on-the-record comments from a fiscal second quarter earnings call.

Those comments include:
“On our fiscal second quarter 2009 earnings call in February we discussed a limited restructuring where we could in the near term see a total reduction of between 1,500 and 2,000 jobs company wide. This does not represent a broad-scale layoff in our workforce.”
As well as:

“This limited restructuring is part of our ongoing, targeted realignment of resources. While Cisco constantly manages its business priorities, resources and overall employee alignment as part of our overall business management process, we are sensitive to the impact these decisions have on employees during this challenging economic environment. We are doing everything possible to minimize the impact on employees affected by the limited restructuring.”

To this point, Cisco has shown no signs of slowing down with the economy.

We reported here back in November – back before we knew who the “new” president would be – on Cisco CEO John Chambers’ comments that despite a slight dip in earnings, the world’s largest maker of computer networking gear would invest in emerging technologies and position itself to accelerate out of the slower economy.

About a month ago – in a widely anticipated move that pits Cisco against several erstwhile partners – the company unveiled a new data center architecture that includes compute, network, storage access and virtualization resources in a single rackable system.

The company also spoke to TMCnet last month after announcing its plan to acquire Pure Digital Technologies Inc., creators of Flip Video products, for $590 million.

In the past week, Cisco – which is also expanding its business on the “connected home” front – announced that it’s bolstering its data center strategy with a planned $105 million acquisition of an intelligent application management and automation solutions creator.

Cisco says its acquisition of Tidal Software, Inc. will provide timely, accurate and cost-efficient management and automation of application performance across entire business operations, from the server through the network to the desktop.

Just last week, Moritz reported on rumors that Cisco was eyeing the packet core gear market for mobile phone networks.

According to this story by Moritz, talk spread that Cisco was in trials with Verizon to make equipment that supports higher traffic volumes and sell more Web-based services – which, if you’ve been following Chambers at all in the last six month, likely means video.

If true, Cisco’s move could be devastating for a Tewksbury, Massachusetts-based stock market darling that’s picked up more and more contracts in 3G upgrades and 4G long-term evolution, or “LTE” projects: Starent Networks.

As Moritz notes, Chambers – who himself has “stubbornly” held out hope of a quick turnaround for the economy – may be facing “the unthinkable.”

“The buzz is getting stronger, so it’s anyone’s guess when it’s announced,” another analyst, who asked not to be named, reportedly told Moritz. “But probably not before they report earnings in early May.”

BY Michael Dinan - TMCnet Editor

Michael Dinan is a contributing editor for TMCnet, covering news in the IP communications, call center and customer relationship management industries. To read more of Michael's articles, please visit his columnist page.

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