Cisco may face lay offs as profits plunge

Cisco boss John Chambers has been forced to backtrack on previous vows to avoid redundancies, raising the spectre of mass lay offs after announcing the networking bellwether’s second quarter profits had dropped by 27%.

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Speaking on a conference call, Chambers said 2,000 positions at Cisco were currently at risk but insisted these job cuts were linked to normal day-to-day restructuring.

However, he continued: “If business continues to change dramatically we will obviously do what is necessary to bring our expense structure in line with revenue. If that is the case, lay offs could be necessary as they have been one time in the past.”

Although Cisco beat its own forecasts and analyst expectations, its net profits still fell by over $500m and its shares slipped in after-hours trading. Sales also declined 7% to $9.1bn, reflecting increased slowdown in orders in December and January. Cisco expects this trend to continue, forecasting third quarter sales to drop by as much as 20% year-on-year.

Chambers, renowned for his optimistic outlook in previous statements, said he was still more bullish than many of Cisco’s competitors.

He remarked: “The length of the downturn is still in question and being very candid no one including us really knows how long it will last. The majority of our customers are guessing 2010 while a smaller group sees the upturn towards the end of 2009.”

“Given the coordinated activities of global central banks and the extremely large stimulus packages that are being implemented in almost all of our major countries I tend to be a little bit more optimistic than most of my customers. Time will tell if that optimism is appropriate.”