Cisco May Cut as Many as 10000 Jobs to Buoy Profit - Bloomberg

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Sales of Cisco’s switches and routers, which made up more than half of revenue last year, will continue to slip. Photographer: Jock Fistick/Bloomberg

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July 11 (Bloomberg) -- Brian Marshall, an analyst at Gleacher & Co., talks about the possibility that Cisco System Inc. may begin "pretty large" workforce reductions in August. Marshall speaks with Betty Liu and Jon Erlichman on Bloomberg Television's "In the Loop." (Source: Bloomberg)

July 11 (Bloomberg) -- Brian Modoff, an analyst at Deutsche Bank Securities Inc., talks about Cisco Systems Inc.'s cost-reduction strategy and the outlook for layoffs at the world's largest networking-equipment company. He speaks with Emily Chang and Cory Johnson on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

The cuts include as many as 7,000 jobs that would be eliminated by the end of August. Photographer: Gianluca Colla/Bloomberg

Cisco Systems Chief Executive Officer John Chambers. Photographer: Jacob Kepler/Bloomberg
Cisco Systems Inc. (CSCO), the largest networking-equipment company, may cut as many as 10,000 jobs, or about 14 percent of its workforce, to revive profit growth, according to two people familiar with the plans.
The cuts include as many as 7,000 jobs that would be eliminated by the end of August, said the people, who asked not to be identified because the plans aren’t final. Cisco is also providing early-retirement packages to about 3,000 workers who accepted buyouts, the people said.
Cisco Chief Executive Officer John Chambers is slashing jobs and exiting less-profitable businesses as competitors such as Juniper Networks Inc. (JNPR) and Hewlett-Packard Co. (HPQ) take market share in Cisco’s main businesses with lower-priced, simpler products. Sales of Cisco’s switches and routers, which made up more than half of revenue last year, will continue to slip, said Brian Marshall, an analyst at Gleacher & Co.
Eliminating jobs will help Cisco wring $1 billion in savings in fiscal 2012, the company said in May. Cisco expects costs of $500 million to $1.1 billion in the fiscal fourth quarter as a result of the voluntary early retirement program, it said in a quarterly filing.
“We will provide additional detail on the cost reductions, including layoffs, on our next earnings call,” Karen Tillman, a spokeswoman for San Jose, California-based Cisco, said in reference to an earnings call scheduled for early August. She declined to discuss job-cut figures.
The voluntary retirement packages included one year’s pay and medical benefits, and were offered to about 5,800 employees, two people said.
“The revenue trajectory hasn’t been where it should be,” Marshall, who has a “neutral” rating on the stock with a target price of $17, said in an interview. “The company is not staffed on an appropriate level. They simply have too many employees.”
Cisco gained 7 cents to $15.50 as of 9:32 a.m. New York time. It has dropped 24 percent this year before today on the Nasdaq Stock Market, while the Standard & Poor’s 500 Index has risen 4.9 percent.
Analysts at Gleacher and Miller Tabak & Co. said yesterday that the company would cut at least 5,000 jobs as part of a turnaround effort.
Cisco’s share of worldwide switching revenue dropped 5.8 percentage points to 68.5 percent in the first quarter of 2011 from a year earlier, according to a May report from Dell’Oro Group, a Redwood City, California-based researcher. Hewlett- Packard gained switching share in that period.
In global router sales, Cisco lost 6.4 percentage points to 54.2 percent of the market, while Juniper gained, Dell’Oro said.
Cisco’s revenue is projected to rise 7 percent this year to $43 billion, less than the 11 percent growth posted in 2010, according to the average estimate of analysts in a Bloomberg survey. Analysts have an average stock target price of $20.62, Bloomberg data show.
Cisco said in May that it shuttered the Flip video-camera unit and cut 550 jobs. The company may eliminate more positions in the consumer-product unit, which makes Linksys home- networking equipment, Marshall said. Some investors have said the company should exit consumer products entirely to focus on traditional enterprise offerings such as routers and switches. Cisco’s equipment is used by corporate networks and telephone and Internet service providers to direct Web traffic.
Trimming about 5,000 jobs would reduce operating expenses by about $1 billion annually and boost 2012 earnings by about 8 percent, Marshall said.
The company is also reorganizing management to streamline its business and focus on areas of growth, Cisco said in May. To speed decision making, the company organized field operations into three geographic regions and reformed a council-style management structure.
To contact the reporters on this story: Ashlee Vance in San Francisco at avance3@bloomberg.net; Olga Kharif in Portland at okharif@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net.
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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