Cisco cuts jobs as profits fall

Cisco is to cut 6,000 jobs, or 8% of its workforce, after another quarter of shrinking profits

Cisco will cut up to 6,000 jobs, approximately 8% of its global workforce, following another disappointing quarter for the networking kingpin.

Fourth-quarter revenues of $12.4bn (£7.4bn) were flat year-on-year, and net income of $2.2bn was down by 1%. Full-year revenues of $47.1bn were down by 3% on 2013, while net income of $7.9bn was down by 21.3%.

As a result, Cisco chiefs said they would embark on a limited restructuring programme as they seek to effectively respond to the numerous challenges that have dogged the supplier. Cisco has faced, among other things, intense competition and pressure from rival Huawei, and the erosion of traditional hardware markets.

Taking questions from analysts, CEO John Chambers billed the cuts as a “reallocation of resources”.

“It is an investment in our growth areas that we felt we needed to do quickly. In terms of why now, it’s the uncertainties in the market – you’re seeing a few headwinds and a lot of tailwinds. The pace to change is accelerating and we felt we had to move with tremendous speed on it,” he said.

Chambers said Cisco would reinvest its savings into growth areas such as cloud, software and security, and noted that those were often skills that the firm already had in one area of engineering that could simply be moved elsewhere.

The firm expects to blow through about $700m in pre-tax charges relating to the redundancies, most of which it will recognise in the first quarter of its fiscal 2015.

In Europe, Cisco grew by just 2% after its business in Russia dried up, however UK growth of 18% on the commercial business and 19% on the enterprise side helped keep the numbers moving in the right direction. Chambers said that for Cisco, the UK was a prime example of how the firm’s global transition to selling architectures, solutions and business outcomes would pan out.

This transformation was reflected in other ways, with Cisco’s datacentre business strong and growing at over 30% year-on-year, and its unified compute segment (UCS) reaching a worldwide run-rate of over $3bn, with 36,500 customers in hand.

On software-defined networking (SDN), Cisco said its application-centric infrastructure portfolio was seeing traction across a number of verticals, including cloud providers, hosted services firms, financial services companies and technology companies.

“You’re going to see us embrace SDN, you’re going to see us implement it for the value that it has. Not only will we lead with this implementation, it will allow us to get higher gross margins on our switching and architecture. And we will do it off of an open standard,” said Chambers.

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