Cisco plans further firings to maintain earnings

Cisco has said it plans to let go around 1,200 people to maintain earnings and is already dealing with a collapse in public-sector network spending

Cisco has announced increased revenues, decreased income, and details of staff layoffs in the next quarter as part of its previously announced job cut plans.

The San Jose-based company reported net income of $1.2bn (£738m) and revenues of $11.2bn on Wednesday for its fourth financial quarter along with overall results for its 2011 financial year. Net income was down 37 percent on the previous quarter's $1.8bn. Revenues, meanwhile, were up by around three percent on the previous quarter's $10.9bn, beating the company's estimate of between zero and two percent.

Earnings for the year were $43.2bn, up almost eight percent on 2010's $40bn, while income collapsed by 16.4 percent to $6.5bn.

"We've made significant progress on our comprehensive action plan to position ourselves for our next stage of growth and profitability, while delivering solid financial results in Q4," John Chambers, Cisco's chief executive, said in a statement. "As we start our next fiscal year, you will see a very focused, agile, lean and aggressive company."

Cisco plans to reduce its annual operational expenditure by $1bn, with the fourth quarter of 2011 set as the benchmark, Chambers said on an earnings call. The company's chief operating officer Gary Moore revealed plans to reduce Cisco's workforce by around 1,200 people in its first quarter of the 2012 financial year.

In the fourth quarter Cisco began divesting itself of a set-top box manufacturing centre in Mexico, which Moore expects will cut the workforce by another 5,000 people.

Reorganisation and retrenchment

The layoffs are part of a major reorganisation of the company, announced by Chambers in April, which has already led to the shutting of the consumer Flip video camera business and various consumer-focused products. He said that Cisco wants to retrench around its core product lines of routing, switching, collaboration, datacentres and video technologies and move out of peripheral businesses.

Another sign of this shift came on Thursday with news that the company was rolling back its smart-grid efforts. Instead of developing specific hardware for energy management, Cisco will make its network ready for smart grid devices when they materialise, Laura Ipsen, vice president of Cisco's smart grid division, wrote in a blog post on Thursday.

Lower spending from the public sector does add pressure to Cisco's switching portfolio performance.

– John Chambers, Cisco

Cisco expects government cuts in spending to hit its revenue further. Public-sector sales comprise around a quarter of its mainstay switching business.

"Lower spending from the public sector does add pressure to Cisco's switching portfolio performance, particularly in the US federal space," Chambers said on the earnings call. Overall, switching orders were up by six percent year-on-year, but orders from the public sector were down by seven percent.

"You're seeing this pressure on a global basis, every major country's going through it," he said.

The company hopes to see growth in cloud-based products, as it expects government spending on the cloud to grow.

In July Cisco announced plans to cut 14 percent — around 11,500 people — from its global workforce to help it compete with other networking rivals such as HP.

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