Cisco to Slash 6,000 Jobs as It Pushes for a Turnaround

Wednesday, 13 Aug 2014 05:58 PM

 

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Cisco Systems Inc. is cutting 6,000 jobs, or 8 percent of its workforce, as it confronts weakness in emerging markets and a slump in demand from telecommunications-service providers.

The world’s largest networking-equipment maker had about 75,000 staff at the end of July. Including the latest round, Cisco has eliminated more than 18,000 employees over the past three years.

John Chambers, who is nearing retirement after almost two decades as Cisco’s chief executive officer, has been grappling with slowing growth for its market-leading routers and switches. Phone carriers and other large companies are replacing legacy network hardware with software that performs many of the same tasks.

“It’s a transition that’s inexorable, and it really puts the pressure on Cisco,” said Alex Henderson, an analyst at Needham & Co., who has a hold rating on Cisco’s stock.

Sales in the current fiscal quarter through October will be $12.4 billion to $12.5 billion, based on the company’s forecast for revenue to remain flat or rise 1 percent.

The shares of San Jose, California-based Cisco were down 1.2 percent in extended trading at about 6 p.m. in New York. During the regular session, the stock edged up 5 cents to $25.20, leaving it up 12 percent this year, compared with a gain of 5.3 percent in the Standard & Poor’s 500 Index.

Market Shift

Revenue in the period that ended July 26 was $12.4 billion, the company said in a statement Wednesday. That beat the average analyst estimate for $12.2 billion, according to data compiled by Bloomberg. Profit, excluding some items, was 55 cents a share, versus a projection for 53 cents.

Net income in the fourth quarter fell to $2.25 billion, or 43 cents a share, from $2.27 billion, or 42 cents, a year earlier.

Cisco faces a challenging shift as customers move from buying hundreds or thousands of proprietary machines with gross margins of 60 percent or more to software-defined networks that can run more efficiently on cheaper gear. The trend has been embraced by companies including Google Inc. and Facebook Inc.

For the year, Cisco’s sales fell 3 percent to $47.1 billion, the first decline since 2009.

Cisco has exited consumer businesses, cut staff and restructured its management in the past three years. The company has come under increased pressure from rivals including Huawei Technologies Co. and Arista Networks Inc. in its main businesses, while newer competitors such as Palo Alto Networks Inc. and FireEye Inc. take share in growing markets such as computer and network security.

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