Cisco Plans to Cut 4,000 Jobs, as It Posts Profit Gain
With a diverse product offering, from selling routers to switches to software, Cisco’s performance is widely regarded as a bellwether for the technology industry.
By JENNA WORTHAM
August 14, 2013
Cisco Systems, the technology industry’s biggest computer infrastructure equipment maker, said on Wednesday that it planned to cut 4,000 jobs, or roughly 5 percent of its work force, in an effort to trim costs and reorganize during what executives described as a “challenging” global economic climate.
The cuts were announced even as Cisco, which sells networking software and services and videoconferencing systems, reported better-than-expected earnings in the fourth quarter of its fiscal year.
John Chambers, the company’s chief executive, said that despite the promising figures, the company still faced significant challenges in the coming months.
In a conference call on Wednesday with investors and analysts, he said that Cisco needed to improve its ability to react quickly to market changes.
“We’ve got to take out middle-level management,” he said. “What I’m really after is not speed of decisions but speed of implementation.” He said that the company’s performance had improved over the last year, but that “it’s just been slow.”
Cisco reported that it earned $2.27 billion, or 42 cents a share, in the fourth quarter, up from $1.92 billion, or 36 cents a share, during the previous year. Revenue rose 6 percent, to $12.42 billion, from $11.69 billion. Analysts had expected the company to report revenues of $12.41 billion. Sales in the United States were strong, but international sales were a concern.
Cisco’s forecast for the current quarter was lower than what analysts had predicted. The company said it expected revenue to increase by no more than 5 percent from the same quarter a year ago. Analysts had expected a gain of 7 percent.
The news sent Cisco’s shares tumbling almost 10 percent to $23.87 in after-hours trading. Shares of rival companies like Juniper Networks also fell.
Cisco is considered one of the crucial indicators of the technology industry’s health because of its dominant share of the routers that connect data centers. But in recent years that market’s growth has cooled, and Cisco has not improved sales in other categories, like cloud-computing services, to compensate.
Amitabh Passi, an analyst at UBS, said Mr. Chambers, who has a reputation for cutting aggressively in the face of a worsening economy, surprised him with the size of the cuts, but he did not take them as a sign of significant problems at Cisco, which is based in San Jose, Calif.
Cisco was one of the first companies to aggressively cut costs at the end of the dot-com boom, a move some say allowed the company to rebound more quickly when the economy improved.
Given Cisco’s dominant position and Mr. Chambers’s reputation for spotting trouble early, Mr. Passi said the news was likely to be interpreted as a bad sign for the entire industry.
“The gas will come out of the tank tomorrow,” he said. “This is going to permeate across the tech sector.”
Ashwin Seshagiri contributed reporting.
© 2013 The New York Times Company