Bloomberg News

Cisco Cutting 6,000 Jobs as CEO Forecasts Stagnant Growth

August 13, 2014

Cisco CEO John Chambers

John Chambers, chief executive officer of Cisco Systems Inc. Photographer: David Paul Morris/Bloomberg

Cisco Systems Inc. (CSCO:US) is cutting 6,000 jobs and forecasting little to no revenue growth in the current quarter amid a slump in demand from phone and cable companies, and weakness in emerging markets.

The world’s largest networking-equipment maker, which has about 74,000 employees, said it will take a pretax charge of as much as $700 million. Including the latest round of firings, which represent about 8 percent of the workforce, Cisco has eliminated more than 18,000 people over the past three years.

John Chambers, who is nearing retirement after almost two decades as Cisco’s chief executive officer, has been grappling with slowing growth for its market-leading routers and switches. Phone carriers and other large companies are replacing legacy network hardware with software that performs many of the same tasks. Sales in emerging markets won’t recover for several more quarters, Chambers said on a conference call.

“They’re making good progress, but this emerging market weakness is going to make things hard for Cisco for the next few quarters,” said Alex Henderson, an analyst at Needham & Co., who has a hold rating on Cisco’s stock.

Sales in the quarter that ends in October will be $12.1 billion to $12.2 billion, based on the company’s forecast for revenue to be unchanged or rise 1 percent. Analysts were projecting, on average, sales of $12.1 billion, according to data compiled by Bloomberg

The shares of San Jose, California-based Cisco fell as much as 3.3 percent in extended trading. The stock advanced less than 1 percent to $25.20 at the close in New York, leaving it up 12 percent this year, compared with a gain of 5.3 percent in the Standard & Poor’s 500 Index.

Market Shift

Revenue in the period that ended July 26 was $12.4 billion, the company said in a statement today, topping analysts’ estimate for $12.2 billion. Profit, excluding some items, was 55 cents a share, versus a prediction for 53 cents.

Cisco’s orders in the U.S. rose 5 percent, while those in Asia fell 7 percent.

Net income in the fourth quarter fell to $2.25 billion, or 43 cents a share, from $2.27 billion, or 42 cents, a year earlier.

Cisco faces a challenging shift as customers move from buying hundreds or thousands of proprietary machines with gross margins of 60 percent or more to software-defined networks that can run more efficiently on cheaper gear. The trend has been embraced by companies including Google Inc. and Facebook Inc.

Competitive Pressure

For the year, Cisco’s sales fell 3 percent to $47.1 billion, the first decline since 2009.

The company has come under increased pressure from rivals including Huawei Technologies Co. and Arista Networks Inc. (ANET:US) in its main businesses, while newer competitors such as Palo Alto Networks Inc. (PANW:US) and FireEye Inc. take share in growing markets such as computer and network security. At stake is whether Cisco can keep dominating the $54.1 billion industry for switches, routers and other equipment that shuttle data and Internet traffic around the globe.

Cisco has exited consumer businesses, cut staff and restructured its management. At the end of 2011, Cisco had 72,000 employees. Companies such as Goldman Sachs Group Inc., Verizon Communications Inc. and Coca-Cola Enterprises Inc. are telling Cisco that they won’t keep paying for expensive equipment, when software can squeeze out more performance and make the machines more versatile.

“What we spent on your gear last year is not what we’re going to spend on your gear this year, unless you do something really different,” Martin Chavez, chief information officer at Goldman Sachs, recalled telling Chambers earlier this year.

To contact the reporter on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Reed Stevenson, Jillian Ward


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Companies Mentioned

  • CSCO
    (Cisco Systems Inc)
    • $25.2 USD
    • -0.01
    • -0.06%
  • ANET
    (Arista Networks Inc)
    • $83.51 USD
    • -0.49
    • -0.59%
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