Networking giant Cisco Systems is going to get 11,500 employees smaller. After Wall Street closed today, Cisco said that it was going to cut 6,500 workers to get its costs more in line with its revenue streams, and added that it was selling off a set-top box manufacturing plant in Mexico with 5,000 employees to Chinese manufacturing Foxconn Technology Group.
After several quarters of disappointing revenue and profit growth, Cisco started giving out its first dividend in March, followed by chairman and CEO John Chambers admitting to Wall Street that the darling of the dot-com boom had disappointed investors and customers with its complicated management structure and forays out into the consumer space. In April, the company shut down its Flip camera unit and in May the company said it would engineer a turnaround with a reorganization that would include looking at its products and markets and laying off employees. Today, with IT industry bellwether IBM reporting its second quarter financial results, Cisco decided this was a good time to put out the details of its turnaround plan.
Cisco wants to eliminate $1bn in annual operating costs, and the restructuring plan announced today calls for 6,500 employees to be eliminated from the company's 72,000-strong global workforce. That works out to about 9 per cent of the base of full-time employees at Cisco. Since the beginning of the calendar year, Cisco has had a voluntary early retirement program in place, and 2,100 workers had already taken Chambers and his chief operating officer Gary Moore up on the offer. So Cisco only needs to give pink slips to 4,400 employees.
Tongues had been wagging about 5,000 job cuts being needed at Cisco, and then other analysts did the math and came up with figures as high as 10,000 employees.
Cisco said that employees will be receiving severance pay and outplacement services and that workers in the United States, Canada, and selected countries would be notified that they have been made redundant in the first week of August. The remaining employees will be let go subject to local laws and regulations, and that no doubt means workers in Europe, where labor laws offer them more protection than is available in the States. Layoffs in these unnamed countries that are very likely Germany, the United Kingdom, and a handful of other European countries, will occur at an unspecified future date.
Another 5,000 workers will be moved off the Cisco payrolls through the sale of the set-top box manufacturing facility in Juarez, Mexico, which the networking giant is selling to Foxconn for an unspecified amount, which one could guess is negligible or else Cisco would have said something about it. Cisco says it remains committed to making set-tops, by the way, and expects to close the sale in October.
Cisco will book pre-tax charges of $1.3bn over several quarters to cover the severance costs associated with the layoffs. Cisco will book approximately $500m in charges in the fourth quarter of its fiscal 2011 (ending in July) relating to the 2,100 employees who took voluntary early retirement, with another $250m coming from actual layoffs up to that point. Cisco will book the remaining $550m in charges during its fiscal 2012. Cisco warned that there will be other restructuring charges as well, but did not elaborate. These could relate to the shuttering of business units. We'll learn more when Cisco reports its Q4 2011 financials on August 10. ®