July 24 (Bloomberg) -- Cisco Systems Inc., the biggest maker of computer-networking equipment, plans to eliminate about 1,300 jobs, or 2 percent of the workforce, as Europe’s debt crisis and sluggish corporate spending threaten sales.
The cuts are part of a “continuous process of simplifying the company, as well as assessing the economic environment in certain parts of the world,” San Jose, California-based Cisco said yesterday in an e-mailed statement.
Cisco shares have tumbled 11 percent this year as Chief Executive Officer John Chambers works to reverse a slowdown in sales growth and stem market-share losses. In May, Chambers cited Europe’s debt crisis, weak government spending and a drop in orders from large corporate customers for a fourth-quarter profit forecast that was below analysts’ estimates. More cuts may be necessary if profitability doesn’t improve, said Erik Suppiger, an analyst at JMP Securities LLC.
“I don’t think 1,300 by itself is going to make a dramatic difference,” Suppiger said in an interview. “Until they start generating healthier top-line growth or reverse some of the gross-margin pressures that they’ve seen, I think they’re going to have to start very aggressively focusing on their operational efficiencies.”
The shares fell 1.8 percent to $16.07 at yesterday’s close in New York.
The latest cuts follow Chambers’s decision last year to eliminate about 6,500 jobs, or 9 percent of the full-time workforce, to help trim $1 billion in annual costs and step up profit growth. Chambers also shuttered the Flip video-camera unit, eliminated a council-based management structure that slowed decision-making, and reduced prices, aiming to refocus the company and gain ground against rivals such as Juniper Networks Inc. and Hewlett-Packard Co.
In May, Cisco reported a 1 percent decline in orders from large corporate customers in the fiscal third quarter. Chambers said spending by those customers got “a little bit tougher,” and the company was facing a “hesitant spending environment.”
“There are areas of the macroeconomic environment we cannot control,” he said at the time.
Cisco is scheduled to report results for the fourth quarter, which ends in July, on Aug. 15. Profit before some costs was forecast to be 44 cents to 46 cents a share, the company said in May. Revenue was projected to rise 2 percent to 5 percent from a year earlier, indicating a range of $11.4 billion to $11.8 billion.
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