I blogged about the Cisco layoffs on June 26, everybody laughed saying that it was not possible. CNBC confirmed it on (Jul 23, 2012) that Cisco (CSCO) will be laying off 2% of its work force. Given the slowing marco environment and slow government spending Cisco has to drastically cut its employees. I believe a major massive layoff is coming between now and January 2013. Cisco has no choice but to cut drastically full time and contract workers. In fact Alcatel Lucent (ALU) just announced that it is laying off 5,000 workers due to the global economic slowdown. Given Cisco pathetic performance, it has no choice but to cut its high overhead and cut it fast.
— ORIGINAL POST —
Chatter of layoffs at Cisco Systems (CSCO) are surfacing again. The layoffs are expect to happen after the July 4th long weekend. It is not know how many workers will be cut. Last time Cisco cut 6,500 employees, a paltry amount, the Wall street had expected 20,000. Many industry insiders expressed disappointment with the paltry layoffs last time, saying that “as usual Cisco comes in on the lower end that the higher end”. Industry insiders say Cisco will eventually have to work toward the 20,000 level very fast as it continues to lose market share on all fronts. The company is so bloated that it need to cut over 40,000 workers in the next three years said another source.
Previously, a Cisco insider said the layoffs will be mostly contractors, “the folks doing the work”, while the over priced fat cats remain, however another insider said hiring of permanent employees has slowed but hiring of contractors has spiked.
Cisco CEO John “Mubarak Hussein” Chambers, has spent over $35 billion acquiring hundreds of companies that have gone no where. There were no synergies behind any of the acquisitions. They netted Cisco a sea of employees that it never needed and has made it uncompetitive at every level. Many employees say that as long as Mubarak Hussein Chambers remains the source of the company’s problems remains intact.
Yet other say that no amount of layoffs will solve Cisco’s problems.
Cisco’s fall from grace was caused by four factors: A momentum shift away from internet and networking companies in the aftermath of the high-tech bubble of the late 1990s; the transition of the Cisco from and emerging to a mature company; growing competition from Alcatel-Lucent (ALU), Hewlett-Packard (HPQ), Juniper Networks (JNPR), Huawei Technologies Co.; and inability to keep up with competition.
What will solve Cisco’s problems is a new leadership; a shift in the company’s culture, a commitment of company’s insiders to buying the company’s stock and a shift from engineeering to economics — as discussed in another piece.
Here I want to add another factor that could potentially help Cisco regain its leadership in the networking industry: Leverage the core business to develop innovative products; and change the innovation model, from one that rely to strategic acquisitions to one that relies on internal capabilities.
To pursue this strategy, Cisco Systems can learn a great deal from Corning Inc. — a 165 year old company that survived and thrived just doing that.
Corning (GLW) began with making electric lamps riding the electricity revolution. The problem, however, is that within a few years 36 companies began doing the same thing — and eventually the market reached saturation. What did Corning do? Leverage its capabilities to make heat resistenca glass for the defense industry. But again the competition caught up. What Corning did? Leverage, again, its core capabilities to make CRTs for TVs. And as competition caught up, Corning went on and on leveraging its core capabilities to develop the one blockbuster product after another: The fiber optic cable, the flat glass, and the green lazer.
The bottom line: Cisco leadership should stick with innovation, not with job cuts to beat the competition.