Cisco planning to cut 7% of global workforce, lay off about 5,500 employees

Published 17.08.2016 20:14
Updated 17.08.2016 23:58
A visitor walks past a Cisco advertising panel at the Mobile World Congress in Barcelona February 27, 2014. (REUTERS Photo)
A visitor walks past a Cisco advertising panel at the Mobile World Congress in Barcelona February 27, 2014. (REUTERS Photo)

Cisco Systems says it will lay off 5,500 employees as the internet gear maker scrambles to adapt to technology changes that have reduced demand for its main products.

The shake-up announced Wednesday means about 7 percent of Cisco's roughly 78,000 workers will lose their jobs beginning this summer.

The purge is the latest example of the upheaval that has rocked some of the world's oldest and biggest technology companies as the relentless march of innovation forces them to head in new directions in search of revenue growth.

In Cisco's case, its business has been hurt as more of its corporate customers rely on remote data centers for their computing needs instead of online networks maintained on their own premises.

Cisco's traditional business of switches and routers has been struggling with sluggish demand from telecom carriers and enterprise customers and intense competition from companies such as Huawei and Juniper Networks Inc.

Revenue in the company's traditional routers business fell 6 percent in the fourth-quarter ended July 30, while switching unit revenue was up 2 percent.

Chief Executive Chuck Robbins, who took over from John Chambers in July last year, has been steering the company toward more software and services businesses.

Revenue in Cisco's security business, which offers firewall protection as well as intrusion detection and prevention systems, rose 16 percent.

Cisco, which is also betting on acquisitions to bolster its faster-growing businesses, has made 10 acquisitions since Robbins took the helm, according to FactSet StreetAccount data.

These deals range from internet-of-things startup Jasper Technologies to cloud security provider CloudLock.

Cisco's net profit rose to $2.81 billion, or 56 cents per share, in the fourth quarter, from $2.32 billion, or 45 cents per share, a year earlier.

Excluding items, the company earned 63 cents per share.

Revenue fell 1.6 percent to $12.64 billion.

Analysts on average had expected a profit of 60 cents and revenue of $12.58 billion, according to Thomson Reuters I/B/E/S.

Cisco, which expects to start laying off employees from the first quarter, said it will take a charge of about $325 million to $400 million in the quarter. On the whole, the company expects a pre-tax charge of $700 million.

Technology news site CRN, citing sources close to the company, reported on Tuesday that Cisco planned to lay off about 14,000 employees, or nearly 20 percent of its workforce.

Cisco's shares were down 1.2 percent at $30.38 in after-market trading on Wednesday.

The shares had gained 13.2 percent this year through Wednesday's close, compared with the 6.8 percent increase in the broader S&P 500 index.

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