July 12, 2011 12:46 pm

Cisco Systems to cut up to 14% of workforce

Cisco Systems is preparing for sweeping job cuts in its latest bid to reverse its slumping performance and bring a sharper focus to its business operations.

The precise scale of the cuts has yet to be determined, according to two people familiar with the plans, though one put the eventual job losses at 8,000-10,000. Cisco employed 73,400 at the end of April.

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Cisco signalled an overhaul of its operations this year, when it said it planned to axe $1bn from annual operating costs to take account of weakening sales in its core networking markets, particularly for switches.

The company has suffered “death by a thousand cuts”, as rivals such as Hewlett-Packard, Huawei, Juniper Systems and Avaya have chipped away at different parts of its market, said Henry Dewing, an analyst at Forrester Research. Sales of switches, which account for nearly 40 per cent of its revenues, fell 9 per cent in the most recent quarter, and the former high-flyer has warned that it expects overall revenues to remain flat in the current quarter.

Cisco made an early retirement offer to some 5,000 of its older workers this year and expects to see 3,000 leave as a result, according to the person familiar with its plans. A further 5,000-7,000 jobs will go through a compulsory plan to be announced next month, this person said.

The company refused to comment, beyond referring to its most recent earnings statement: “As we announced on our Q3 earnings call, Cisco will take out $1bn in costs ... as part of our efforts to streamline company operations, including a planned reduction in workforce. We will provide additional detail on the cost reductions, including lay-offs, on our next earnings call on August 11.” The potential scale of the job cuts was first reported by Bloomberg.

The cuts come after a strategic rethink and management shake-up at the company, designed to curb its headlong expansion into new markets and return focus to its core markets.

But in spite of the moves, and the company’s decision to start paying a dividend to shareholders for the first time, its shares have continued to slide.

In April, Cisco announced an overhaul of its consumer products business, which led to Flip, a video camera business, being shut down.

A month later, it reorganised its management structure, cutting the large number of executive “councils” that approved new efforts to three. The new structure had returned more control to general managers in charge of product groups, said Mr Dewing.

Cisco does not plan to close more business units after the Flip retreat, but expects to cut headcount by trimming existing operations, the person familiar with its plans said.

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