Cisco: Layoffs are coming

Cisco (NASDAQ: CSCO) announced during its third quarter earnings call that it expects to reduce its employee roster as part of a plan to trim expenses by about $1 billion.

Cisco (NASDAQ: CSCO) announced during its third quarter earnings call that it expects to reduce its employee roster as part of a plan to trim expenses by about $1 billion.

The company will first offer early retirement to eligible employees. However, layoffs likely will follow, according to COO Gary Moore. The workforce reduction will be global and affect both full-time and part-time employees, Moore said. Neither Moore nor Chambers estimated how many jobs would be lost.

The earning call came after Cisco announced a 4.8% year over year improvement in fiscal third quarter revenues on a GAAP basis, but year-over-year declines in net income and earnings per share on a GAAP basis. The company announced results for its fiscal third quarter, which ended April 30, 2011, yesterday after U.S markets closed.

Cisco reported third quarter net sales of $10.9 billion and net income on a GAAP basis of $1.8 billion or $0.33 per share. Gross margins year on year also declined, from 65.2% in 3Q10 to 63.9% in the most recent fiscal third quarter. However, gross margin improved from the previous quarter by 1.5%.

The earnings statement followed an announcement from Chairman and CEO John Chambers that he has launched a review of the company’s operations and his intent to refocus the company. On April 12, Cisco revealed it would scale back its involvement in consumer markets to focus on five niches that it believes have growth potential:

  1. core routing, switching, and services
  2. collaboration
  3. data center virtualization and cloud
  4. video
  5. architectures for business transformation.

The fact that Cisco’s revenues from consumer operations dropped 49% year on year in the third quarter no doubt illustrates the rationale for pruning its activities in the consumer space. Moore said that additional portfolio reviews are underway.

In the conference call, Chambers also acknowledged weakness in its public sector operations, which declined 8% year over year in the third quarter, as well as its set-top box business. However, Cisco currently has no plans to leave either space.

"This quarter played out as we expected," said John Chambers, chairman and CEO, Cisco. "We have acknowledged our challenges. We know what we have to do. We have a clear game plan, and we are a company with a track record of market-shaping innovation. We thank our shareholders, employees, customers and partners as we transition to the next phase of Cisco."

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