Cisco to Cut 5,500 Jobs, Shift Focus to Faster-Growth Areas

Cisco Sales Drops 2%, Sees Cut of 5,500 JObs
  • Networking-gear maker to invest in security, cloud businesses
  • Fourth-quarter profit tops estimates; revenue is in line

Cisco Systems Inc., the biggest maker of equipment that runs the internet, plans to cut 5,500 jobs, or 7 percent of its workforce, seeking to shift resources to faster-growth markets as sales slow in its traditional hardware-based businesses.

Key Points

  • The San Jose, California-based company said it will reinvest all the cost savings from the restructuring plan, which will begin in the current quarter, into businesses such as security, connected devices, data-center products and the cloud.
  • Profit before certain costs will be 58 cents to 60 cents in the fiscal first quarter, which ends in October. That compares with an average analyst estimate of 60 cents.
  • Revenue will be little changed from a year earlier, the company said Wednesday in a statement, indicating sales of about $12.7 billion. On average analysts had projected $12.5 billion.
  • In the fourth quarter, which ended July 30, Cisco’s net income rose to $2.81 billion, or 56 cents a share, from $2.32 billion, or 45 cents, a year earlier. Sales fell 2 percent to $12.6 billion. Excluding some costs, profit was 63 cents, compared with an average estimate for profit of 60 cents on revenue of $12.6 billion.

The Big Picture

Chief Executive Chuck Robbins is trying to maintain his company’s dominance in networking gear, the backbone of the internet and corporate communications systems, as customers increasingly seek alternatives to the expensive hardware and proprietary software combinations that made Cisco so successful. Cutting Cisco’s workforce of about 73,000 may give Robbins the resources to speed up the company’s transition to a provider of software, hardware and services designed to suit customers’ needs as networking moves to cloud-based technology.

The Details

  • Shares slipped about 1 percent in extended trading following the report. Earlier, they declined 1.3 percent to $30.72 at the close in New York.
  • Cisco’s biggest division, switching, reported fourth-quarter sales of $3.8 billion, a gain of 2 percent from a year earlier.
  • Routing, the second-largest source of sales, posted revenue of $1.88 billion, a drop of 6 percent, the company said.
  • Adjusted gross margin, or the percentage of sales remaining after deducting costs of production, was 65 percent in the recent quarter. It will be 63 percent to 64 percent in the current period.
  • The company last announced a large round of firings in August 2014, when it eliminated 6,000 positions.
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