Latest Cisco Restructuring To Impact 6,000 Jobs

Cisco Systems Wednesday revealed plans for another corporate restructuring that will see it shed 6,000 jobs, or roughly 8 percent of its global workforce, in a bid to refocus on what the networking leader called key growth areas including cloud, software and security.

The layoffs, mentioned Wednesday during Cisco's fourth-quarter earnings call with analysts, will start in Cisco's first fiscal quarter. Cisco did not say which parts of its business will be impacted.

"If we are going to become the No. 1 IT player, which we are going to do, our ability to move requires decisiveness and it requires investing in these growth [areas]," Chief Executive John Chambers said on the call.

[Related: CRN Exclusive: 30 Tough Questions For Cisco's John Chambers]

The job cuts come after several bumpy quarters for Cisco financially. In December, the San Jose, Calif.-based company slashed its long-term revenue growth outlook for the next three to five years to be in the range of 3 percent to 6 percent. That compares with original guidance of 5 percent to 7 percent.

The layoffs also come as Cisco's core network hardware business faces new pressure amid a market shift to software-defined networking, a technology that takes the high-end functions of switches and routers and turns them into software that can run on cheap, commodity hardware. In Cisco's fourth quarter, ended July 26, its switching and core routing businesses were down 4 percent and 7 percent, respectively.

Mont Phelps, CEO of Waltham, Mass.-based NWN, one of Cisco’s top national enterprise partners and No. 81 on the CRN SP500, said he sees the kind of workforce restructuring that Cisco is doing as a fact of life in the cloud era.

’Nobody likes to see that kind of reduction in force but it is the right thing for their business,’ Phelps said. ’It is not something that will make Cisco weaker. It should actually make them stronger. The world is changing, but the sky is not falling. Cisco is obviously still a leader. Like all of us they still need to negotiate the challenges ahead but I have confidence in them.’

A year ago, also during its fourth quarter earnings call, Cisco announced plans to cut 4,000 jobs. Cisco has parted ways with a total of roughly 12,000 employees since kicking off a broader corporate restructuring in July 2011.

Despite the cuts, Cisco's fourth quarter results beat both its own and analysts' estimates.

Revenue for the quarter totaled $12.4 billion, down 0.5 percent from the year-ago period. Wall Street analysts expected revenue of $12.1 billion, according to Thomson Reuters.

Net income for the quarter was $2.2 billion, down one percent from a year earlier.

Cisco said its enterprise business was up 9 percent globally, while its service provider business continued to be a pain point, declining 11 percent year-over-year. Cisco's U.S. enterprise business rose 16 percent year-over-year, a jump Chambers said is one of the most significant Cisco has seen in "many years."

While Cisco's overall U.S. business grew 5 percent, emerging markets continued to be a challenge, falling 9 percent compared to last year.

In addition to Cisco's switching and core routing businesses taking a hit, its collaboration business also slipped, with revenue down 4 percent compared to last year.

Cisco's data center business grew more than 30 percent -- driven largely by the strength of its Unified Computing Systems (UCS) business -- while wireless was up 8 percent and security was up 29 percent.

For the full year 2014, Cisco reported revenue of $47.1 billion, down three percent compared to 2013. Net income for the year was $7.9 billion, down 21.3 percent year-over-year.

Cisco shares were down about 1 percent in after-hours trading Wednesday. The company had a recent market value of $129.09 billion.

NEXT: Chambers Talks ACI, Intercloud Progress

Chambers said Cisco is starting to see solid market traction with its Application Centric Infrastructure (ACI) SDN offering. The number of customers for Cisco's Nexus 9000 switches, the foundational component of ACI, tripled over the quarter, Chambers said, and now total 580 customers.

Meanwhile, Cisco has signed on 60 "paying" customers for its Application Policy Infrastructure Controller (APIC), another key component of ACI, since the product starting shipping last month. He said these customers have given Cisco "very positive feedback."

"We continue to see strong growth with the Nexus [9000] and our ACI portfolio with key wins across all major verticals, including cloud providers, hosting, financial services and technology providers," Chambers said on the call. "We believe we are leading this SDN transition and you will hear the same from many of our customers."

Details surrounding the progress of Cisco's Intercloud strategy were a bit more light. Chambers said customers and partners continue to view Cisco's approach to cloud as "differential and unique," given its focus on hybrid cloud environments and the ability to move workloads between different public and private clouds.

He also said Cisco has allocated more than 2,000 employees to its new Intercloud organization. There was no word, however, on customer adoption, and Chambers said Intercloud sales will not materialize on Cisco's balance sheet "in a meaningful way for a number of quarters."

Phelps, for his part, said Cisco is already farther down the cloud path than many give the company credit for. He pointed to NWNcomm, a hosted cloud-based Cisco communications platform that includes voice, video, web conferencing, telecom and contact center provided by NWN, which has sold thousands of seats on a subscription basis to the platform.

’We have been providing this Cisco Powered cloud communications platform going on three years,’ he said. "Our Cisco business is up double digits.’

Phelps said the move toward cloud solution is accelerating among customers.

’The cloud is coming and it is coming quickly,’ he said. ’It is a profound shift. It is going to create opportunities for those that can adjust and adapt, but it is not going to be business as usual.’

As he did in a recent interview with CRN, Chambers stressed to analysts that one of Cisco's core strengths has always been, and is still, navigating major market transitions, such as those happening today around SDN and cloud.

"While there are tremendous opportunities for our business and we are moving the resources to capitalize on them, there is always significant risk, as we discussed. This is the technology industry and change is constant and accelerating," Chambers said. "We have navigated this industry successfully for almost three decades, while nearly every competitor we faced 10 to 20 years ago has either exited our part of the market, sold in terms of market share or has gone out of business. Our vision is clear and our strategy is working."

Looking ahead, Cisco expects revenue for its fiscal first quarter to be in the range of flat to up one percent on a year-over-year basis.

Steve Burke contributed to this article.

PUBLISHED AUG. 13, 2014