Cisco’s Dilemma: 6,500 Layoffs Might Not Be Enough (Is CEO John Chamber's Job Next?)

24X7 Wall Street ^ | 07/19/2011 | Jon C. Ogg

[SeekAndFind]

Cisco Systems Inc. (NASDAQ: CSCO) seems as though it cannot win for losing. The company’s updated “action plan” involves a further organizational simplification, implying lower costs and layoffs. The company aims to trim $1 billion from its annual operating budget and it is going to lay off about 6,500 workers as a result. About 2,100 of those will be ‘voluntary early retirement’ plans, whatever that is. The plan calls for eliminating about 15% of vice president and above employees. That comes to a 9% total workforce reduction. There is more to this story than meets the eye.

Employees in the U.S., Canada, and elsewhere will be notified in the first week in August. Cisco said that this will come to a charge on GAAP earnings that is up to $1.3 billion as a result. Of that amount, some $750 million will be in the company’s fiscal fourth quarter and the balance of the charges will come throughout its fiscal 2012 year.

Cisco also confessed that it will incur other restructuring charges which “will be disclosed in earnings conference calls and in SEC filings.” Cisco did say that it was going transfer over a factory in Juarez, Mexico to Foxconn in a deal which would close by October. The company is selling the video and telecom equipment factory to Foxconn and this is a 5,000 person facility that it received when it acquired Scientific Atlanta in 2006. While it says that it assumed the 5,000-person facility, the company did not outline the full details of its number of workers there.

Where this layoff gets sad is that the reports that first came out went from around 5,000 workers to 10,000 workers before the week ended. Shares closed at $15.44 after a 1% drop and the stock is trading only at $15.45 in the after-hours session. It is a sad day when technology employees get laid off and then it is not enough to keep investors happy.

If this turnaround does not work then John Chambers is going to need to announce sometime in calendar 2012 that he is adding one more early retirement in with the restructuring plan. That would be his own retirement as CEO, even if he tries to maintain the Chairman title.

Could you imagine going back to the 1990s and telling investors that Cisco would be a dead stock for a decade and then that it was going to have to scale down its empire with layoffs after spending about 20 years buying entity after entity? There is a lesson to be learned: nothing lasts forever in stocks and public company. Literally, nothing.

[the invisib1e hand]

a contrarian might muse that when a bubble-star like cisco starts disintegrating, a bottom might be near...

[Moose4]

Everybody out here in central NC is on pins and needles about this. Cisco is one of the big-dog employers in Research Triangle Park between Durham and Raleigh, and the word’s floating around that job losses here will be huge (well into four digits). This high-tech and biotech-heavy area has been hit less hard by the Great Recession than many others, but that may be about to change.

}:-)4

[dfwgator]

More Hopey Hopey Change Change.

[Lurker]

Cisco deserves every bad thing that happens to it. No company in the IT world has done more to screw their customers over. I don’t feel sorry for them in the least.<P)

Cisco’s loss will be HP’s gain.

[Logical me]

What burn my butt is if King Obama bails them our most of the bailout money will go from our taxes to their employee wages and a huge bonus for the CEO. Maybe if America would realize just where their money really goes the end would be closer.

[SeekAndFind]

RE: More Hopey Hopey Change Change.

Not sure if we can blame Obama for Cisco’s troubles. A problem like Cisco is facing could occur even in a robust economy.

They are in a very competitive business and competitors (Juniper Networks for instance) have introduced products that are better, more reliable and faster, easier to maintain and use that theirs.

Is see this as bad for Cisco, but good for consumers in general. May the one who provides the best product, win.

[xenob]

Ugh, HP is way worse. Customer service is abysmal. Pay for 24/7 4 hour response service get your emergency part next day, don’t like it too bad. That is when you can get a customer service person that speaks English.

[FreedomProtector]

I also work in the triangle....

How credible/valid is this rumor?

“and the word’s floating around that job losses here will be huge (well into four digits).”

One speculative ‘guess’ made based on news stories (Bloomburg) floating and number of people working in triangle was 14% of 4000 people cut or ~560.

Is the triangle likely to be hit harder then other Cisco sites?

[MulberryDraw]

That comes to a 9% total workforce reduction.

and that would be a decent start for the federal government.

[Sergio]

Look into Juniper Networks.

[SeekAndFind]

RE: That comes to a 9% total workforce reduction.

That should be a little relief... the expectation was that it would be 15% of the workforce !!

Maybe they haven’t finished axing yet...(Hope not).

[max americana]

>Cisco deserves every bad thing that happens to it. No company in the IT world has done more to screw their customers over. I don’t feel sorry for them in the least.<P)

Cisco’s loss will be HP’s gain.<

On my part of the industry, most people hate HP more than Cisco. Cisco treats their server biz “so-so”, but HP treats BOTH their consumer and business customers like morons. Throughout the years, companies I’ve been associated with have pulled their hairs in pissed-off mode on how HP effs their customers.

I hope HP goes bankrupt as well.

[Roses0508]

I live in the Triad area. Know a lot of people in the Triangle area in technology jobs - as our business is related. Lot of worried folks over the CISCO cuts.

[Mr. Jeeves]

It has been shown that successful companies go through an explosive growth period that lasts about eight years, after which they stabilize and their stocks become dividend-payers rather than growth plays. All the big tech giants hit this plateau by 2000, so any investor expecting further big growth out of a Cisco or Microsoft was simply kidding himself.

[tomkat]

HP sucks to a degree that simply can't be described here w/o imminent zot

[NVDave]

I know people at JNPR. Many of whom used to work at CSCO when I did.

They cannot believe that when it is all said and done, many of the mistakes that cisco made in IOS that Juniper is repeating in their s/w.

When I heard this complaint from guys who moved over to Juniper promising that they were going to “do it right,” I threw my head back and laughed like a hyena.

[NVDave]

Sad to say, I saw this coming from a decade away. Chambers can’t seem to create internal organic growth, all he can seem to do is buy it on the outside. He would piss away 10’s to 100’s of millions on companies that had trivial products that we could have cranked out for less than a megabuck on the inside - if only the C-level management had told us “we want a product like this by quarter X.” They rarely did.

Well, there’s only so many ponies that turn into champion racehorses... and in every pasture, there’s lots and lots of horsepoop. Chambers has been stomping on a lot of horsepoop in the last 10 years. And then he tracked in a lot of that horsie-poop into the company, soiling the rugs and then some. Increasingly, these acquisitions diluted the successful culture and now the place is a shambles of bureaucracy and ineptitude.

Sure, they rank very highly on surveys of all manner of grifters and layabouts as a place to work. They’re rated highly by homosexuals, working mothers, people who are too fat or have health issues, women in general, third worlders seeking career advancement, etc.

But if you’re an engineer who wants to accomplish something in your career, it is an utterly soul-crushing place to work.

[NVDave]

That’s true, and the real problem here is that Chambers resists paying out their fat cash wad in dividends with every fiber of his soul.

The buybacks of the common aren’t raising the price, so the only option he has left is to start paying a dividend.

Large companies creating a reliable FCF and paying a dividend isn’t a bad thing, but Chambers doesn’t want to *admit* that he’s running a large company that just throws off a large FCF. He wants to think that there’s always a new market into which they can grow. Well, there are, but any new market isn’t ever going to get CSCO’s growth back to 10%.

Truth be told, I never really thought all that much of Chambers. Many engineers viewed him with a wary eye. By contrast, the early engineers loved Morgridge. The guy would walk the halls of engineering on Friday afternoons with a beer in hand at times, just pop into your cube and ask in that midwestern accent of his “Howya doing? Got a sec? Whatcha working on?”

And then he’d sit there and *listen* to certified nerds explain what they were doing. Then Morgridge would ask “OK, so how does this add to the bottom line? Who is paying for this?” and make the engineerings staff think about how their efforts fit into the overall business. He was a great CEO. Horrible puns at company meetings, but a guy who would actually listen to employees.

[Sergio]

Interesting...I just want to keep up on lower cost options to Cisco. Of course if reliability and functionality are not there, price is no longer an issue.