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The full impact of Cisco's job cuts

16.5% of Cisco workforce reduced, while layoffs are largest in tech this year.

By , Network World
July 20, 2011 01:42 PM ET

Network World - When you combine this week's layoffs with other recent restructuring, Cisco has actually eliminated 12,050 jobs from its workforce, a reduction of 16.5% that includes the largest downsizing in the technology industry this year.

Cisco this week announced it eliminated 6,500 jobs, 2,100 of which came from the early retirement program implemented in May. Cisco shed an additional 5,000 positions when it sold a cable set-top box plant in Mexico, along with its workforce. Add to that the 550 that went when Cisco dumped Flip and restructured its consumer business. 

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According to outplacement firm Challenger, Gray & Christmas, Cisco's downsizing is the largest job cut this year in a technology sector that is experiencing record low downsizing. Technology firms announced just 14,308 job cuts in the first half of 2011, a 60% drop from the 35,375 cuts announced during the same period a year ago, the firm says.

"The Cisco cuts notwithstanding, the overall health of the technology sector remains very strong," said John Challenger, CEO of Challenger, Gray & Christmas, in a statement. "In fact, it is one of the best performing industries in the economy at the moment."

Prior to the Cisco workforce reductions, which will be counted in Challenger's third-quarter tally of tech-sector job cuts, the largest reported layoff this year came from Qwest Communications, which announced 1,800 planned job cuts in March.

Some analysts say the total sum of Cisco's downsizing will exceed the company's expense reduction goal of $1 billion by another quarter-billion dollars.

But is Cisco done? Cisco was expected to cut 4,000 to 5,000 positions, or about 6% of its workforce, before speculation had that number climbing to 10,000, or almost 14%.

"The number is about where I expected it to be," says Scott Denehy of Technology Business Research in New Hampshire. "Certainly at the high range when you factor in that extra 5,000."

But aside from the 550 in the consumer business and 2,100 in early retirement, it's still not clear where in Cisco the cuts took place and what product lines may have been most significantly affected. Analysts and other observers are still waiting for details on specifically where the cuts were made and which product lines are affected.

Cisco is expected to shed some businesses, like it did with the Flip videocam operations, in an effort to pare back down to its core.

"I'm curious to get some detail around where those cuts were made and the rationale behind them," Dennehy says.

Cisco may give more insight and detail into the areas affected by the cuts during its earnings call Aug. 10. It would appear, though, that actually making cable set-top boxes -- which came from the 2005 acquisition of Scientific-Atlanta for close to $7 billion - is less strategic to Cisco than actually selling them.

Then again, is selling them still strategic?

"It wasn't clear to me what the rationale of the plant shutdown was - to outsource that job or a sign of things to come for that set-top box business," Dennehy says. "When I think about that Videoscape architecture and the vision they have for that, ultimately those will not include a (cable) set-top. It might make sense for them to outsource for a little while and then go to someone else entirely."

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