5,500 Jobs Cut to Cost Cisco $700m

Cisco Systems Inc. is cutting 5,500 employees, 7% of its workforce, in the networking company’s latest reaction to market shifts, including customers favouring software over hardware, and will incur $700 million of charges related to the cuts, according to the Wall Street Journal report on Thursday.

The reduction beginning this quarter renews a pattern of midsummer moves to shed costs and make room to hire employees with new talents.

The job cuts, disclosed with its fiscal fourth-quarter financial results, mark the most dramatic move yet by Chief Executive Chuck Robbins, who a year ago assumed a position held for two decades by John Chambers, who remains the company’s chairman.

The San Jose, Calif.-based company said it would reinvest the savings from the job cuts into businesses that it expects to grow, including its own software and service offerings. Cisco said it plans to record pretax charges of up to $700 million for severance and termination benefits.

Cisco has long held a dominant share of sales of the routing and switching equipment used to funnel data over the internet and between computers in data centers. Though the company has diversified its business significantly, those two hardware categories remain its largest sources of revenue, and their sales have been slowing lately.

On Wednesday, Cisco said fourth-quarter switching revenue rose 2%, while revenue in its routing business fell 6%. In the prior quarter, revenue fell in both businesses.

Over all, Cisco said its fiscal fourth-quarter profit rose 21% on a 1.6% revenue drop as the company tightened expenses in a variety of areas. Shares of the company fell 1% to $30.31 in after-hours trading.

Profit climbed to $2.81 billion, or 56 cents a share, from $2.32 billion, or 45 cents a share in the same period a year earlier. Revenue fell to $12.64 billion from $12.84 billion.

The company projected revenue in the current quarter would be flat plus or minus 1%, compared with the year-ago period. It predicted adjusted earnings per share of between 58 cents and 60 cents. Analysts expect revenue to fall 2% and adjusted earnings of 60 cents.

“We continued to manage our business well,” Mr. Robbins said on a conference call, despite what he called an uncertain economic environment.

Revenue from telecom carriers and other service providers declined 5%, turning negative after three consecutive quarters of growth, he said.

Cisco and other hardware vendors have been hurt by changes at such customers, which have been struggling to pare costs while handling steadily increasing data traffic. In many cases, they are adopting a combination of networking software and less-expensive boxes running standard Intel Corp. microprocessor chips instead of special-purpose hardware that is Cisco’s specialty, the Wall Street Journal report shows.