Frank Calderoni, CFO of Cisco Systems, said the company plans to charge about $550 million dollars on a pre-tax basis to cover the cost of restructuring. Markets responded and Cisco’s shares dropped more than 9% in after-hour trading.
The staff cut (or workflow reorganization as it’s so often put euphemistically) is significant. Over 5% of Cisco’s global workforce will be unemployed or in new positions.
The announcement came during a conference call Calderoni had with analysts.
The irony behind the layoffs is that Cisco had a solid fourth quarter but CEO John Chambers said the cuts are a corollary of sticking to it’s financial model.
Chambers elaborated today:
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.
So the cuts were a strategic. Even though for the 2013 fiscal year Cisco reported $10 billion in earnings which was up 5.5% from last year, in order to nail it’s numbers this year the 4000 cuts were necessary. The cuts were all about quick decision making and speed so Cisco could position itself to remain the market leader.