Cisco Launches Internal Restructuring Plan, Set To Cut 5,500 Employees

Cisco is undertaking a major restructuring effort in order to invest in priority areas such as security and Internet of Things that includes the elimination of up to 5,500 positions.

’Restructuring [enables] us to optimize our cost base in lower growth areas of our portfolio and further invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud,’ said CEO Chuck Robbins, during Cisco’s fourth fiscal quarter earnings call with financial analysts on Wednesday.

Cisco will reinvest ’substantially all of the cost savings’ from the restructuring back into these fast-growth business areas. The 5,500 layoffs, representing about 7 percent of Cisco’s global workforce, will begin in the first quarter of fiscal year currently underway.

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Sources recently told CRN that Cisco was planning to cut between 9,000 to 14,000 positions within the next few weeks. Cisco executives on the call did not indicate if additional cuts were to be expected in the future.

Cisco declined to comment when asked by CRN if additional cuts were expected.

Channel partners cheered the San Jose, Calif.-based networking giant's decision to restructure, saying it’s a necessity in today’s changing market.

’Freeing up dollars to accelerate market alignment is what partners would like to see,’ said Kent Macdonald, vice president of converged infrastructure and network services at Long View Systems, a Calgary, Alberta-based solution provider and Cisco Gold partner. ’It’s sad to see the departures, but it’s a reality that we all face. We all have to make those transitions or we lose our market relevance.’

Macdonald said the skill set needed in today’s market is forcing the industry to seek a ’new generation’ of talent such as data scientists and security experts.

Robert Keblusek, CTO of Downers Grove, Ill.- based Sentinel Technologies, a Cisco Gold partner, said the push in high-growth markets such as cloud security will create more growth opportunities for channel partners.

’Cisco’s got a lot of good products and a lot of good things going on, but they probably get a little bit spread out overtime,’ said Keblusek. ’Maybe this is the time to do some clean up, tighten up and refocus … I didn’t see Cisco take a huge hit in their capabilities during previous times when [Cisco cut] positions.’

Robbins said the restructuring includes tighter coupling of security into Cisco’s core as well as a stronger focus on policy, orchestration and cloud-based management across its entire portfolio. However, Robbins said the plan would not de-emphasize the company’s focus and investment in its core routing and switching business.

’It’s not that we’re ignoring one in favor of another, we just want to make sure that our investments are commensurate with the growth opportunity,’ said Robbins.

For its fourth fiscal quarter of 2016, Cisco reported revenue of $12.64 billion, down from $12.84 billion in the year-ago quarter.

Profits for the quarter climbed to $2.81 billion, or 56 cents per share, up from $2.32 billion, or 46 cents per share, a year ago.

On a non-GAAP basis, the company earned $3.2 billion, or 63 cents per share, up from $3 billion, or 58 cents per share, a year ago.

Wall Street analysts expected Cisco to report earnings of 60 cents per share on revenue of $12.57 billion.

The largest growth area for the network leader was in security, which increased 16 percent year over year to $540 million. This marks the third straight quarter that Cisco posted double-digit revenue growth in security.