Cisco Confirms 6,500 Job Cuts -- But Not Until August

The VAR Guy

July 18, 2011

3 Min Read
Cisco Confirms 6,500 Job Cuts -- But Not Until August

The other shoe nearly dropped today at Cisco Systems Inc. The networking giant confirmed plans to eliminate 6,500 employees worldwide. The twist: The impacted employees won’t be informed until August. Among the expected cuts: 15 percent of VP-level and above employees. The VAR Guy is checking to determine if any channel VPs are exiting the company. In the meantime, here’s the blow-by-blow.

Roughly 2,100 of the 6,500 job cuts involve employees who opted for a voluntary early retirement program. Cisco also sold its set-top box manufacturing business, shifting 5,000 people to a new employer. The moves come as Wall Street continues to worry about margin and market share erosion at Cisco.

How did we get to this point? Leading up to Cisco Partner Summit 2011 back in February, The VAR Guy asked Cisco Senior VP Edison Peres if the company was stretched too thin promoting too many different priorities to partners. And during the actual Cisco Partner Summit, The VAR Guy openly wondered if CEO John Chambers was in reaction mode rather than proactive mode. The prime example: Chambers took more than a decade to name a COO at the company, though Chambers insisted that the move was proactive.

By April 2011, Chambers conceded that Cisco had lost its way and needed to refocus. Some pundits predicted Cisco would cut as many as 10,000 employees. The official answer finally arrived today. Among the moves Cisco announced:

  • a $1 billion annual operating expense reduction;

  • Cisco has eliminated 15 percent of vice president level and above employees.

  • All affected employees will receive severance pay and outplacement assistance.

  • Impacted employees in the United States, Canada and select countries will be notified during the first week of August.

  • The remainder of the global workforce reductions are expected to occur at a later date in compliance with local laws and regulations.

  • Cisco has also agreed to sell its set-top box manufacturing facility in Juarez, Mexico, to Foxconn Technology Group. The approximately 5,000 people employed at the facility will become employees of Foxconn in the first quarter of fiscal 2012 and no job losses are expected as a result of the sale, Cisco said.

Meanwhile, concerns about Cisco’s market share and profit margins continue to surface on Wall Street. Earlier today — before Cisco confirmed the job cuts — RBC Capital Markets predicted that Cisco’s switching prices would fall faster than expected while Cisco gross margins would face attack, according to Barron’s.

Smelling blood in the water, Hewlett-Packard has spent recent weeks calling the IT media and bloggers, promoting the idea that HP’s networking business continues to gain ground on Cisco.

Further complicating matters for Cisco: The company announced job cuts the very day that IBM flexed its muscle and delivered better-than-expected Q2 results.

The VAR Guy has reached out to Cisco for additional comment about the company’s channel partner program and channel team status amid the anticipated August job cuts.

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