Tags: Tech | Bellwether | Cisco | Jobs

Tech Bellwether Cisco to Slash 4,000 Jobs as Outlook Turns Cloudy

Wednesday, 14 Aug 2013 05:25 PM

Cisco Systems Inc., the biggest maker of networking equipment, said it’s cutting about 5 percent of its workforce after issuing a fiscal first-quarter sales forecast that missed most analysts’ estimates.

Cisco is eliminating 4,000 jobs as weaker sales in Japan, China and Europe weigh on revenue growth, Chief Executive Officer John Chambers said on a conference call late Wednesday.

Revenue for the current quarter through October will be $12.2 billion to $12.5 billion, the San Jose, California-based company said in a statement. Analysts on average were projecting sales of $12.5 billion for the current period.

Chambers is grappling with concerns that Cisco’s growth rate may slow as companies and network operators postpone costly overhauls of their networks. Investors were predicting a strong quarter from Cisco because spending by U.S. corporations has been improving, according to Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco.

“They’re going to get crushed,” said Noland, who has an outperform rating on the stock, the equivalent of a buy. “If there’s something wrong somewhere in Cisco, given how well things have been going, investors would expect Cisco to make up the difference somewhere else.”

Cisco shares fell as much as 11 percent in extended trading, and at 6 p.m. New York time were down 9.4 percent at $23.91. The shares advanced less than 1 percent to $26.38 during the regular session in New York, leaving them up 34 percent this year.

Global Impact

While Cisco is benefiting from growing use of Web video and mobile devices that strain data networks and require the purchase of more routers, switches and servers, that hasn’t been enough to make up for weaker sales outside the U.S. Slower world economic growth impacts Cisco because of its global footprint. The company gets more than half its sales from the U.S. and Canada, a quarter from Europe and a sixth from Asia, according to data compiled by Bloomberg.

Profit excluding some items was 52 cents a share in fiscal fourth quarter, while revenue rose 6 percent to $12.4 billion. Analysts on average had projected profit of 51 cents and sales of $12.4 billion, according to data compiled by Bloomberg.

With the new cuts, Cisco will have eliminated 12,300 jobs over the past two years as it has exited consumer businesses while expanding on corporate software and technology services, including cuts of 500 jobs announced in March.

Net income rose 18 percent to $2.27 billion, or 42 cents a share, from $1.92 billion, or 36 cents, a year earlier.

The company’s shares have rallied 46 percent since January 2012 with the introduction of new products and an aggressive strategy, taking business from rivals, including Juniper Networks Inc., the No. 2 maker of computer-networking equipment, according to Simon Leopold, an analyst at Raymond James & Associates in New York.

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