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Cisco layoffs expected soon

Analyst says up to 5,000 positions could be cut early in company's fiscal 2012

By Jim Duffy on Mon, 07/11/11 - 11:55am.

Cisco could be just weeks away from laying off as many as 5,000 people, an analyst wrote in a bulletin this week. The layoff would be one of the largest in Cisco's history and represent 7% of its workforce, notes All Things Digital.

In 2001, Cisco cut 8,000 employees when its headcount was 44,000, according to this post in Barron's.

The impending layoffs would also help the company reduce expenses by $1 billion, a stated goal of Cisco's in the last quarterly conference call. Some of that reduction will come from an early retirement program instituted earlier this year and expected to conclude very soon.

The workforce reduction would coincide with the beginning of Cisco's fiscal 2012 year. Brian Marshall, an analyst at Gleacher & Co., states that 1,000 could come from the early retirement program with an additional 4,000 coming from layoffs.

The workforce reduction would be the third significant step Cisco's taken to streamline operations after several consecutive quarters of financial results that disappointed the company, and Wall Street. First, Cisco dumped its Flip videocam operations and realigned its consumer business; and then Cisco restructured its management and further streamlined sales and product development.

Marshall expects the latest round of cuts to be completed in September. He also says Cisco must formally lower its growth targets from 12% - 17% to a more realistic 10% - 11%. Cisco's been growing pretty consistently at an average 11% over the past five calendar years, Marshall notes in the All Things Digital post.

In the Barron's post, Marshall is quoted as saying:

"I think at the end of the day, we need to come to the fact that there is a pretty big disconnect between Cisco's revenue performance and their headcount. Look at the past eight quarters. They've raised their headcount by 10,000 employees, but their revenue hasn't really gone up all that much."

According to Barron's, Marshall says the most important indicator to him is that in the last four quarters, revenue growth was flat, while headcount rose 4%, or 3,000 employees. This is "an unsustainable trend," he argues.

And in this post from BusinessWeek, Marshall says Cisco should consider a "transformative merger" to become more competitive in enterprise computing. Citing the Gleacher & Co. report, BusinessWeek states: 

A combination with EMC Corp. would give Cisco "better exposure to enterprise storage trends, ownership of the VMware asset for virtualization, a more robust security offering and a better collection of IT service professionals."

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