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Containers Expo Blog: Article

Cisco to Cut 10,000 Jobs: Bloomberg

Cisco is getting eaten alive by competitors like HP and Jupiter selling cheaper switches and routers

Just yesterday Gleacher & Co analyst Brian Marshall was speculating that stumbling industry bellwether Cisco, now a dog of the Dow, might can a stunning 5,000 people next month in an attempt to right itself, trim overhead and tickle its 2012 earnings.

Bloomberg decided to check out the lead and found two sources who said Marshall had underestimated the plan by half and that Cisco would slash its workforce by 10,000, 14%, trying to save CEO John Chambers' job.

Reportedly the plan isn't cast in stone yet but the idea is to lay off 7,000 people. Another 3,000 would go clutching the company's early retirement buy-out to their bosoms.

Cisco is getting eaten alive by competitors like HP and Jupiter selling cheaper switches and routers. That's Cisco's core business, representing more than half its revenues last year. And although it's still dominant, its market share in switches is down around 5.8% and its router share is down about 6.4%.

Part of the problem is its competitive entry into servers. And it doesn't help that governments everywhere have snapped their purses shut, leaving Cisco terribly exposed.

Cisco said in May that job cuts would help it eliminate a billion dollars from its fiscal 2012 results. Marshall said cutting 5,000 would get Cisco its billion-dollar savings and boost 2012 earnings by about 8%. Marshall's of the opinion Cisco really needs a "transformative merger" and suggests it buy EMC and its VMware holdings.

Cisco's promising to catch the market up with its plans on its earnings call August 11. Otherwise Q4 is not expected to be pretty. Earnings were down 18% in Q3.

It's expecting charges of $500 million-$1.4 billion this quarter to cover its voluntary early retirement program, which includes a year's pay and medical benefits. The thing to watch, however, is whether Cisco lowers its growth projection from 12%-17% to something more attainable like no more than 10%.

Expectations are that a lot of the cuts will come out of Cisco's flagging consumer business, an idea reinforced by the fact that Cisco closed its Flip video-camera unit and terminated its 550 people in May. It makes the Linksys home networking widgetry and there's talk it could sell its Scientific-Atlanta set-top box business.

Early estimates figured Cisco might lay off 4,000 people. Marshall remembered that Cisco let 8,000 go back in 2001. Cisco currently employs about 73,400 people.

Its stock has fallen an ignominious 32% in the last year. The rumors may now have established a bottom. It was trading around $15.85 half-way through the Tuesday session.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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