“While this is a difficult decision to make, in our view, it is required in order to maintain the ‘competitiveness’ of Cisco going forward,” analyst Brian Marshall of Gleacher & Co., wrote in a note to investors Monday.
The cut of 5,000 jobs would be 6.8 per cent of the 73,400 employees Cisco [Nasdaq: CSCO] had in April, he noted, but below the job cuts Cisco made in in 2001-2002 when it when from 44,000 to 36,000.
Marshall’s recommended cuts come one day before Cisco CEO John Chambers is set to make a keynote address at Cisco Live! in Las Vegas where thousands of Cisco’s customers and Cisco certified engineers are attending.
Chambers has already said the company will lay off employees amid a major restructuring. In May, Cisco reported an 11 per cent decline in third-quarter profit and said it had extended itself into too many businesses. At that time, Cisco estimated that revenues for the current quarter, which ends July 31, would be flat or up by less than two per cent.
Job cuts have already started with an early retirement program, and the workforce reduction Cisco expects to make will be global, affecting both full-time and contract workers, according to Gary Moore, who was appointed chief operating officer in May. He is cutting US$1 billion out of Cisco’s annual operating expenses over the next year.
In May, Cisco said it would tell employees of cuts in August or September. Cisco officials did not react immediately Monday to Marshall’s recommendation to cut 5,000 jobs.
Marshall tabulated that cutting 5,000 jobs would reduce Cisco expenses by about US$1 billion annually.
Marshall also urged Cisco to formally lower its long-term financial targets, cutting annual revenue targets by about 10 per cent, down from a range of 12 to 17 per cent with operating margins dropped to about 25 per cent, down from a range of 28 to 31 per cent.
Marshall also warned that while Cisco is considered the 800-pound gorilla in networking, it is still vulnerable to the competitive threat of smaller players who can “chip away at Cisco’s dominance.” He noted that Cisco cannot acquire all of its smaller competitors, even though it has purchased more than 50 of them since 2005. Those that remain independent and a potential threat as a group include Juniper Networks Inc.[NYSE: JNPR], Brocade Communications Systems [Nasdaq: BRCD] and Fortinet Inc. [Nasdaq: FTNT].