Latest round of layoffs appear to signal that Cisco’s turnaround strategy still needs more time to work

Despite realizing an increase in revenue by six per cent to $12.4 billion in the fourth quarter, Cisco Systems Inc. announced that it will be cutting no less than 4,000 jobs or five per cent of its workforce.

The planned layoffs, Cisco’s second for his year, appears to signal that the network gear company’s turnaround strategy to branch out into the software and security markets, has hit a snag.

In a statement today, Cisco said the retrenchment is part of its efforts to realign its business.

“During the earnings call on August 14th, Cisco announced actions to align resources to our top opportunities, balance expenses to revenue, drive efficiencies in business, and invest in growth,” the email statement said. “These actions include prioritizing R&D, aligning new and existing talent to growth areas and a workforce reduction impacting approximately 4,000 employees, or five per cent of our workforce.”

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A Cisco spokesperson said at this point, she “can’t be specific regarding regions” affected by the job cuts.
At least one analyst said the latest development doesn’t point to “any soft of shift in Cisco’s business.”
 
“I would expect that this is more of an accounting and operational adjustment rather than an indicator of Cisco’s business health or shift in business focus,” said David Senf, vice-president of infrastructure solutiions group at analyst firm IDC Canada. “Our data shows healthy Cisco growth in most markets they play in – particularly in Canada.”
 
Cisco has more than 65,000 workers in 92 nations. An estimated 38,000 work in Canada and the United States, while the rest are in the Asia Pacific Region, Europe, Japan and other emerging markets.

With the new layoffs, Cisco will have cut as much as 12,000 positions in the last two years. Last march, the company eliminated 500 jobs, in 2011, the company laid off 6,500 workers.

The latest round of job cuts ironically follows a report from Cisco yesterday, that its revenues for the fourth quarter rose six per cent to $12.4 billion. Cisco shares are trading 52 cents per share, at least one cent above most Wall Street analysts’ estimates.

The company’s net income rose 18 per cent to $2.27 billion from $1.9 billion last year.

However, Cisco is estimated to have spent no less than $10 billion in the last three years purchasing 59 companies as it sought to diversify into the software and security business.

Among its latest acquisition was intrusion detection company Sourcefire Ltd., which Cisco bought for $2.7 billion last month.

The diversification is part of its efforts to reduce dependence on networking gear which has increasingly become commoditized.

Traditional industry stalwarts such as Cisco are facing stiff competition from new entrants like Huawei technologies Co. and Juniper Networks Inc. which are squeezing profit margins.

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