Cisco Cuts Workforce by 7% in Attempt to Speed Transition

CEO Chuck Robbins has been shifting the company’s offerings toward software-based networking, security and management products.

August 17, 2016

2 Min Read
Cisco Cuts Workforce by 7 in Attempt to Speed Transition

(Bloomberg) — Cisco Systems Inc., the biggest maker of equipment that runs the internet, plans to cut about 7 percent of its workforce, trying to recast itself as a provider of software-based systems and services.

The company will eliminate 5,500 positions, beginning in the current quarter, from a workforce of more than 73,700 at the end of April, Cisco said Wednesday in a statement. Any savings from the job reductions will be invested in areas where Cisco may grow more quickly, such as cloud computing and connected devices, the company said.

“They may be trying to shift skill sets in terms of toward software from hardware,” said David Heger, an analyst at Edward Jones & Co.

Chief Executive Officer Chuck Robbins, who took over in July 2015, has been working to rekindle growth by shifting Cisco’s offerings toward software-based networking, security and management products, which customers increasingly prefer because they’re less expensive and more versatile.

“We are looking at the areas where we believe growth will come faster,” Robbins said in a conference call. “It’s not that we’re ignoring one in favor of another, we just want to make sure our investments are commensurate with the growth opportunity.”

Shares of the company declined about 1 percent in extended trading following the announcement. Earlier they had fallen 1.3 percent to $30.72, leaving them up 13 percent this year.

“Cisco is plodding along,” Heger said. “They’re not overall declining. That’s a signal that they’re managing the transition fairly well.”

Underlining Cisco’s struggles to revitalize growth, the company Wednesday reported fourth-quarter sales that declined 2 percent from a year earlier in a “challenging macro environment.”

Sales in its biggest business unit, switching, increased 2 percent to $3.8 billion while routing, the second-largest revenue source, fell 6 percent to $1.9 billion. That was partially made up for by security, which grew 16 percent, and collaboration, which posted a 6 percent gain in sales.

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