By Don Clark
Cisco Systems Inc. once again moved to cut jobs after reporting
a quarter of little sales growth, saying it will remove about 6,000
employees from its payrolls.
The reductions, which amount to about 8% of the technology
giant's global workforce, come as Cisco continues to struggle in
emerging markets and in selling to cable companies and other
service providers.
Cisco said it expects to record pretax charges of up to $700
million to cover the costs of the restructuring, which continues a
recent pattern. A year ago, for example, the company announced
plans to cut 4,000 jobs, or 5% of its workforce.
The moves by the Silicon Valley giant, known for networking
hardware, come as Cisco's fourth-quarter financial results topped
its projections and showed signs that the worst of a recent
slowdown is over.
Nevertheless, the company still hasn't been able to return to
growth. Cisco's fourth-quarter profit slid 1% on revenue that edged
down 0.5%.
John Chambers, Cisco's chief executive, in an interview said the
job reductions are designed to make room for adding different kinds
of skills rather than cutting total costs. Shedding employees in
declining businesses, he said, will allow the company to add needed
skills in units that are growing.
"We will exit this year pretty much with the same number of
people we started the year with," he said. "Some groups will not be
affected at all. Others will."
Cisco said it plans to add staff in areas that include its data
center, software, security and cloud offerings. Mr. Chambers
declined to spell out which areas will bear the brunt of cuts until
affected employees are notified. But he acknowledged that examples
could include sales representatives in countries where revenues are
shrinking.
On a conference call, Mr. Chambers said the company expects
revenue in the first fiscal quarter to be flat to up 1% from the
year-earlier period. He said the company continues to expect
weakness in its service provider video business, which declined 10%
in the fourth period.
He also expects struggles to remain in the emerging markets,
particularly China, Brazil, Mexico, India and Russia. "The emerging
markets lost momentum in Q4," Mr. Chambers said.
Cisco's shares declined about 1% in after-hours trading to
$24.89. The shares had gained about 12% this year.
Bill Kreher, an analyst at Edward Jones, said Cisco is moving
more quickly than in the past to trim costs in businesses where it
faces stiff competition, such as in switching and routing. "The
pace of change is quicker than ever," he said.
Cisco, based in San Jose, Calif., is best known for routing and
switching systems that funnel data among server systems and around
the Internet. But the company has branched into new markets through
acquisitions, including TV set-top boxes, videoconferencing and
computer security products.
The company recently announced plans to offer computer services
to other companies, based on a model the industry calls cloud
computing.
Cisco, whose customers include many kinds of companies and
telecom vendors, is often among the first to experience the effects
of new boom and bust cycles.
Cisco's biggest business remains switching systems, a field
where it faces stiff competition from established vendors and newer
entrants like Arista Networks Inc. It has recently introduced a
switching system called the Nexus 9000 that has been attracting
orders, though Mr. Chambers has said it would take some time for
the hardware to show significant sales.
Cisco on Wednesday said the switching market declined 4% in the
fourth quarter. Routing devices declined 7%.
In all, Cisco reported net income for the quarter ended July 26
of $2.25 billion, or 43 cents a share, compared with profit in the
year-earlier period of $2.27 billion, or 42 cents. Revenue declined
to $12.36 billion from $12.4 billion.
Adjusted to exclude items such as stock-based compensation
expenses and acquisition-related amortization, Cisco put its
earnings per share at 55 cents a share. Analysts on that basis had
expected per-share earnings of 53 cents on revenue of $12.14
billion, according to Thomson First Call.
Tess Stynes contributed to this article.
Write to Don Clark at don.clark@wsj.com and Tess Stynes at
tess.stynes@wsj.com
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