Cisco preps layoffs, aligns with competitive reality

Cisco is reportedly preparing to cut anywhere from 5,000 to 10,000 jobs by then end of August as it adjusts to the reality that it can't command the prices it wants for its networking gear.

According to Bloomberg, Cisco is preparing to eliminate jobs by the end of August. Some of the cuts will be early retirement, but other layoffs will be involuntary. Reuters put the job cuts at about 5,000.

Cisco Live, the company's customer event, kicks off Tuesday and Wednesday.

The reality is that Cisco has to adjust to cut costs for the long term because of fierce competition with the likes of Juniper Networks and HP. Both companies are squeezing Cisco's core router and switch business.

Sterne Agee analyst Shaw Wu said that Cisco can be fixed and the company is going through what many tech companies such as EMC and Apple have. "The last thing we need in this challenging economy is more layoffs but unfortunately, we believe this may be a necessary step for Cisco to right size its cost structure to be more competitive with pricing in the market place. This is particularly true for its switch business (31% of revenue)," said Wu in a research note.

Wu added that IBM, Apple and EMC have all executed successful turnarounds. Cisco's large installed base of products and companies put the odds in its favor for a successful turnaround.

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