Cisco's outlook, job cuts cause angst

Summary:Analysts are having trouble digesting Cisco's solid fourth quarter and the company's outlook and plans to cut 4,000 jobs. Did Cisco stretch to hit its numbers?

Cisco Systems has a good fourth quarter, but the party ended when CEO John Chambers talked about a lumpy economy and announced surprise layoffs as 4,000 positions will be eliminated.

The conclusion from many analysts on Thursday---following Cisco's head scratching conference call after its earnings report ---was that the networking giant stretched to hit its numbers. Chambers is confident in Cisco's ability to execute, but he's not so keen on the moving parts in the global economy.

Analysts had trouble digesting the news.

Piper Jaffray analyst Troy Jensen noted that commercial and U.S. enterprise gains were offset by weakness in Asia Pacific and emerging markets. The positives and negatives are roughly in balance. Here's Jensen's handy chart.

cisco081513a

 

Other analysts were worried that Cisco's growth has stalled. Part of this worry is that Cisco is the canary in the economic coal mine. Chambers and Cisco see trends first. Cisco's business improves and usually the economy follows and vice versa.

Much of this worry may be misplaced. Chambers had a long explanation of Cisco's approach and why it is cutting jobs when the company is still performing well. Chambers' take seems solid and may be the most clear assessment of the technology spending environment you're going to get. 

The environment in terms of our business is improving slightly but nowhere near the pace that we want. You know what product orders have done minus the acquisition and spinouts because that gives you a feeling for what our growth is going to be and those will bump them up or down. It's just not growing at the speed we want. The inconsistency of global GDP growth and lots of time you see northern Europe start to get stronger, you see the issues in emerging markets start to get softer. You see us successful in one category switching and you see us not as successful except in the edge in terms of the routing.

Now if we are going to lead in this industry, the one thing I have learned over the years is you have to be the first mover. We have to very quickly reallocate the resources. A fair amount of that 4,000 people will be allocated to new growth opportunities.

We were very pleased with how we have made progress the last two years on speeding up decisions and today's marketplace---they are almost up exponentially on how quickly not only decisions have to be made but how quickly you implement those. Those need to be done with small teams. We just have too much in the middle of the organization.

It's all about speed of pace in this new industry which we intend to balance. We make commitments on a financial model which we are absolutely sticking to...Every well-run business in the world grows and keeps business expenses in line...This is just good business management and I have learned in this industry you lead with your mind, not with your heart.

Topics: Networking, Cisco, Data Centers

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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