Cisco Systems Inc. shares fell after a report in CRN said the largest maker of networking equipment will cut as many as 14,000 employees worldwide, or about 20% of its workforce.
San Jose, Calif.-based Cisco will announce the cuts in the next few weeks, technology website CRN said on August 16, without naming its sources. Andrea Duffy, a spokeswoman for Cisco, declined to comment on the report.
Chief Executive Officer Chuck Robbins, who took over in July 2015, has been working to boost growth by shifting Cisco’s offerings toward software-based networking, security and management products, which customers increasingly prefer because they’re less expensive and more versatile. The job cuts stem from Cisco’s transition away from its hardware roots, according to the CRN article.
Cisco has been facing a “day of reckoning” for a while now as the commoditization of its switching business reduces profit over time, according to JPMorgan Chase & Co. analyst Rod Hall.
Cisco fell 1.8 percent to $30.58 at 9:56 a.m. in New York. The shares were up 15 percent this year through the close of trading Tuesday, before the report was published.
In the near term, the deep job cuts could could have a “large potential positive impact” on the company’s results, boosting 2017 earnings by 9 percent to 13 percent per share, Hall wrote in a note. Cisco will report fiscal fourth-quarter earnings Wednesday after the close in New York. Analysts project a 2 percent decline in sales to $12.6 billion. The job cuts will overshadow the earnings results, Hall said.
If confirmed “we would see it as a sign that Cisco is finally beginning to behave like a company facing technological disruption,” Hall said. The move implies “that the new management team is willing to make the tough decisions necessary to navigate what we believe are going to be very choppy waters in the next 3-5 years.”
Cisco had about 73,100 employees as of April, according to data compiled by Bloomberg. The company last announced a large round of firings in August 2014, when it eliminated 6,000 positions.
The new emphasis on software is requiring staff with a different set of skills, CRN reported. Many early retirement plans have already been offered to employees, according to the website.
Cisco has shown its appetite for software with recent acquisitions, such as Jasper Technologies, which makes programs that let companies connect all manner of electronic devices.
Results released in May showed that Robbins is making headway in rejiggering Cisco’s businesses. The company projected sales growth of as much as 3 percent in the period that ended in July, compared with analysts’ projections for a revenue decline. Even so, Robbins said the company still has a long way to go and that earnings are not where they should be.
Cisco’s biggest division, switching, had third-quarter sales of $3.45 billion, a decline of 3% from a year earlier. Its second-largest division, routing, suffered a 5% drop in sales to $1.89 billion, the company said. Newer units including security, service-provider video and collaboration all posted sales increases of more than 10%.
By Jillian Ward and Nicole Piper