Cisco CEO, John Chambers, said on the earnings call that it planned to trim its workforce as part of a plan to cut some $1 billion in costs. He did not say how many jobs will be cut but it is estimated that amount of savings represents 3,000 – 4,000 jobs or about 4 percent of Cisco’s 73,000 permanent workers. Cisco also has an undisclosed number of contractors.
Sources that I spoke with said Cisco needs to cut at least 20,000 permanent employees just to survive. In the last 8 odd years, Cisco has spent $35 billion in acquisitions that have gone nowhere or done nothing. A couple of weeks ago the company planned to close one of its smallest acquisitions, the Flip video camcorder. Cisco paid $590 million for Flip. The cuts are expected to save the company $300 million. Flip contributed $20 million in revenue for Cisco. These kinds of foolish acquisitions have made Cisco a mediocre today, and company needs to cut deep just to stay in the game and survive.
Herein, lies the problem. Cisco’s competitors such as Juniper (JNPR), Acme Packet (APKT), and Alcatel (ALU) offer the same, similar or better products for 50-90% less. They don’t have to price-in the for a large mass of people into their products. Hence, Cisco’s large mass of employees have become a tax on the company and its products, making them uncompetitive.
Cisco’s Chambers is quick to point to bad market conditions or a weak economy as excuses for Cisco’s bad performance. Cisco’s Chief Financial Officer, Frank Calderoni, said in an interview that he did not know when Switching sales will start to grow again. In the meantime, investors are getting tired of waiting. Cisco’s stock is down 35% in the past when the market was hitting all-time highs and it is down 80% in the last 10 years whereas the Dow is up 20% over the same period. As a CNBC reporter told Chambers, [sic] “Your company has become a dinosaur – your problems are internal ones”.