Cisco gets ready for biggest layoff in its history

Four analysts estimated that the world’s largest network equipment maker will eliminate up to 4,000 jobs in coming months, with the average forecast at 3,000. That would represent 4 per cent of Cisco’s 73,000 permanent workers. It also has an undisclosed number of temporary contractors.

According to Canaccord Genuity analyst Paul Mansky, Cisco’s previous record layoffs was set in fiscal 2002, when the company shed some 2,000 jobs, back when the Internet bubble burst, ending a period of unrestrained spending on technology products as Internet start-ups and old school companies alike rushed to establish a Web presence.

But presently, Cisco cannot point to bad market conditions or a weak economy as excuses for wielding the axe to its payroll. Instead, Chambers, last month, took responsibility for mistakes in managing Cisco, saying it needs to focus on its core businesses and be more disciplined about expanding into new areas.

Thus, some of the layoffs are expected to come from businesses that Cisco pulls out of in coming months, while Chambers has said he will pull out of some nonstrategic areas where Cisco is not the best player. A month ago, Chambers said Cisco would dump its Flip video camera business, axe 550 jobs and take a charge of $300 million related to the move. He has yet to disclose which business will be going next, but Cisco has invested heavily in an array of consumer products that have yet to take off, including its Umi home video conference system and home security cameras.

Cisco said that it planned to trim its workforce as part of a plan to cut some $1 billion in costs from its annual budget. Executives declined to comment on how many jobs they will cut, saying it would be announced by the end of summer.

Wall Street analysts, who were disappointed with the low revenue forecast that Cisco gave for the current quarter and the coming fiscal year, said they were pleased to see Cisco taking quick and decisive action on restructuring. BGC Partners anlyst Colin Gillis said, “We all love the billion dollars in cost savings, but you never cheer people losing their jobs.”

One of Cisco’s key challenges will be to boost the revenue and profit margins of its single largest business, which is selling switches that form the backbone of the Internet and corporate networks, with a smaller workforce.

That unit’s sales have fallen in the past two quarters amid steep competition from Hewlett-Packard Co and Juniper Networks, whose sales are growing. Cisco’s planned job cuts stand out at a time when most other US technology companies have started to add jobs after cutbacks during the recession.