Cisco pulls plug on PixStream

As a follow-up to a corporate-wide announcement to re-focus operations to core competencies, Cisco Systems Canada Co. of Toronto cut approximately 25 per cent of its staff, most of which were employees of the recently-acquired PixStream Inc. of Waterloo, Ont.

Up until the layoffs, Cisco employed 1,090 people in the Video Technology Operation (formerly PixStream) in Waterloo, the Ottawa Development Centre in Ottawa, and in the sales and service offices across the country.

“As you may have expected and as we expected, Cisco Canada has been affected by the overall worldwide slowdown in technology spending,” said Andrew Sage, director of marketing at Cisco Canada. San Jose, Calif.-based Cisco Systems Inc. first announced the economy’s effect on the corporation on March 9 and kicked off a “cost reduction initiative.” As a result of trying to turn back to its core competencies, which are best summed up as building networks, the decision was made to shut down the video networking wing of the Canadian operation.

According to an official statement released by the company, the sales and service operations has been reduced by 434 employees and the Ottawa Development Centre has lost 435 employees. The PixStream division, which was acquired in December for US$369 million, will be shut down entirely in four months, but 170 employees have already been laid off. To keep customers of PixStream happy for now while Cisco tries to calculate the best move for transitioning the video networking customers, 50 employees will be kept on until the final shutdown of the business unit, Sage said.

“The decision around PixStream was based on economic conditions, particularly in the service provider market,” Sage said. “On a worldwide scale, the business in the service provider line has been hit extremely significantly, and so, overall in that line of business, Cisco is looking at getting back to our basics, which means building the networks that support data, voice and video for our service provider customers.”

When that business was growing at 65 percent per annum rate, Cisco had the luxury of making some calculated risks, he added.

“Sadly, there’s all too much of this kind of news that’s coming out of the whole communications industry,” said Dan McLean, director of enterprise network services research at Toronto’s International Data Corp. (IDC) Canada.

What this means for Cisco’s remaining Canadian employees is that there will be a lot fewer people doing all the work, McLean said. He added that he thinks Cisco is focused on trying to get through this bad period for networking and communications companies.

“I don’t imagine you’re going to hear a lot of happy stories for the remainder of the year in this particular industry,” McLean said. “You just hope that it doesn’t get any worse than it is, but it is certainly in the realm of possibility that it’s going to get worse, and maybe a lot worse.”

McLean added he was surprised Cisco pulled the plug on PixStream because the aspect of video in a converged network seemed to be a piece on which the company wanted to focus.

Is this the first of many job cuts to come from the networking giant? According to Sage, the answer is no.

“We took our time and investigated this very thoroughly. We went as deep as we thought we had to go to avoid other rounds of cuts,” Sage said. “However, if market conditions continue to deteriorate, we may have to re-evaluate that situation.”