July 19, 2011 2:10 am

Cisco loses 6,500 jobs in drive to cut costs

Cisco Systems is to cut its workforce by 9 per cent as it struggles to improve its performance and refocus on its core network equipment operations.

The Silicon Valley company said 6,500 employees would leave the company as part of a $1bn annual operating expenses reduction announced in May. This includes about 2,100 staff opting for voluntary early retirement.

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The cuts were fewer than anticipated, with sources indicating last week that 8,000-10,000 jobs could be cut from a global workforce that totalled 73,400 at the end of April.

Its headcount is set to be reduced by another 5,000, however, after the sale of a factory in Mexico to the Taiwanese contract manufacturer Foxconn, also announced on Monday.

Cisco acquired the facility in Juarez in 2006 when it bought Scientific Atlanta, the television set-top box maker. No price was announced for its sale, which is expected to be completed by October.

“Today’s [Tuesday’s] announcement further simplifies and consolidates Cisco’s manufacturing operations,” said Gary Moore, chief operating officer. “We ... will continue investing in existing and new video platforms, including set-top-boxes, as part of our Videoscape vision.”

Cisco said it would take most of the associated restructuring charges for the job cuts during its current fourth fiscal quarter, ending this month. About $750m will be recorded this quarter, with $500m relating to the voluntary early retirement programme. A further $550m will be recognised in the next fiscal year.

Cisco shares, which have lost almost a third of their value over the past year, were flat in extended trading in New York at $15.43.

“We think the moves will better align the cost structure with current demand, as well as help the company drive simplicity and agility into the organisation,” said Standard & Poor’s analysts in a note.

“Still, we remain wary of declining revenue prospects, as the company deals with restructuring and product transition issues amid an intensifying competitive environment.”

Cisco warned in a regulatory filing on Monday that it expected to record other restructuring charges as it continued to simplify its organisation and reduce operational spending.

Earlier, in April, Cisco had announced an overhaul of its consumer products business, which led to its Flip video camera business being shut down. In May, it reorganised its management structure, cutting the large number of executive “councils” that approved new efforts to three.

John Chambers, chief executive, had issued an internal call to action in April with an e-mail to employees. “We have been slow to make decisions, we have had surprises where we should not ... that is unacceptable,” he said.

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