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Cisco layoffs this week part of 'Transformation Project'

Jim Duffy | July 25, 2012
Cisco's layoffs this week could be the first in a series of cutbacks hitting product lines and business units that have underperformed.

Cisco's layoffs this week could be the first in a series of cutbacks hitting product lines and business units that have underperformed.

Wide Area Application Services (WAAS), Collaboration, Linksys and Advanced Services have been hit with the pink slips, mostly in sales departments, according to online buzz. Collaboration specifically was called out in Cisco's last earnings call as an execution disappointment; and Cisco historically has had a hard time catching Riverbed in the WAN optimization market.

The Linksys home router unit -- virtually all that's left of Cisco's scuttled consumer business -- has been rumored for a while to be the target of further streamlining. And Advanced Services, Cisco's consulting and integration business, may have become a bit too fat for the company as its stock price and market cap decelerate in the face of heightened competition, market share losses and tightened customer spending.

Indeed, the 1,300 employees let go this week may be the tip of an iceberg that ultimately sees thousands more released as Cisco winds up a challenging fiscal year 2012. The current fourth quarter is expected to come in well below Wall Street expectations due to ongoing economic challenges and conservatism in enterprise IT spending.

Sources say Cisco has enlisted a consulting firm to advise the company on a sweeping consolidation that could result in several more so-called "limited restructurings." The plan is part of Cisco's Transformation Project, an effort led by Senior Vice President Angel Mendez to "deliver greater productivity, agility, and growth" by tweaking the company's product and services portfolio, and operational capabilities.

"They are doing a companywide consolidation called the Cisco Transformation Project," a source said. "People are hush-hush about it, but ... they are trying to eliminate organization and functional redundancy. I expect layoffs to keep coming."

Sources say Cisco is doing a "bottom 5% elimination," and that layoffs may continue until December.

Interestingly, all of this comes as Cisco wins European approval to close its $5 billion acquisition of pay-TV technology company NDS and absorb 5,000 new employees. It also coincides with a pivotal acquisition in the network virtualization and software-defined networking space, with VMware's $1.26 billion purchase of startup Nicira announced this week.

VMware, the leader in server virtualization and a longtime Cisco partner, is broadening its reach into network virtualization with the Nicira acquisition. Several analysts and other observers expect competition between VMware and Cisco to intensify and for their partnership to be strained.

More immediately though are product issues, beginning with WAAS. Cisco is the No. 2 vendor in WAN optimization behind Riverbed, but a distant No. 2. Its share of the $1 billion market is about 12% to 13%, compared with Riverbed's 40% to 50%, according to Dell'Oro Group.


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