Cisco to cut up to 8,000 workers

The networking equipment maker plans to cut up to 8,000 workers because of concerns that the tough U.S. economic climate could worsen and spread internationally.

2 min read
Cisco Systems plans to cut up to 8,000 workers, or 16 percent of its overall work force, because of concerns that the tough U.S. economic climate could worsen and spread internationally.

Cisco on Friday announced it will cut between 3,000 to 5,000 full-time positions. That's between 7 percent to 11 percent, of its 44,000 full-time employees worldwide. The networking giant will also lay off between 2,500 to 3,000 part-time and contract workers. The company currently employs 4,000 temporary employees.

News of the layoffs initially leaked out Thursday. The company made its announcement at the close of the market Friday.

Cisco's stock fell 10 percent Friday, dropping $2.19 to $20.63.

Analyst Seth Spalding of Epoch Partners said it wouldn't surprise him if Cisco lowers revenue estimates sometime in the future. The company is probably facing slower sales of business networking products in Europe and Asia, he said.

Spalding added that Cisco's stock drop on Friday was more a reflection of the entire stock market downturn, rather than investor skittishness over Cisco itself.

"It's an overreaction. Cisco is down more due to the fact that the whole market was down," he said.

Cisco executives said the continued slowdown in the U.S. economy could also reduce sales of its networking equipment. The work force reductions will include normal attrition, they said.

"We're taking these steps because of the continuing slowdown in the U.S. economy and initial signs of a slowdown expanding to other parts of the world," Cisco Chief Executive John Chambers said in a statement. "We also now believe that this slowdown in capital spending could extend beyond two quarters."

The company, however, stopped short of revising its earnings estimates for the current third quarter and beyond.

"While Cisco is only five weeks into the third quarter and it is premature to quantify the impact of this current business climate, we do expect a wider range of estimates for the remainder of this fiscal year," Cisco Chief Financial Officer Larry Carter said in a statement.

In a conference call with analysts last month, Chambers had warned that sequential revenue growth for the next two quarters will be flat. He also predicted that Cisco's revenue for the current fiscal year would grow 40 percent over last year. But that prediction was based on the assumption that the U.S. economy would recover in the second half of this calendar year and that the economic slowdown doesn't spread internationally.

Cisco in February missed second-quarter earnings expectations by one penny because of sluggish sales of networking equipment to telecommunications service providers. The company also saw slack sales to businesses, particularly in manufacturing, Chambers had said.

With Friday's reductions, Cisco plans to take a one-time charge of $300 million to $400 million by the end of the current fiscal year. The company also plans to cut other costs, such as travel and marketing.