Fri, May 13, 2011 - Page 10 News List

Cisco Systems to cut costs and jobs as its profits stall

‘CLEAR GAME PLAN’:The company is aiming to cut annual expenses by US$1 billion to address long-term challenges after net income declined nearly 18% in Q3

AP, NEW YORK

Cisco Systems Inc, the world’s largest maker of computer networking gear, said on Wednesday that it is set to eliminate thousands of jobs as part of cost-cutting moves to get profits growing again.

Cisco’s sales rebounded from the recession, but then started stalling in the middle of last year. In the past few months, chief executive John Chambers has signaled that he’s accepting long-standing criticism that the company is trying to compete in too many markets. He has vowed to radically simplify the firm.

The company remains in trouble and on Wednesday, it gave a financial forecast for the current quarter that was well below analysts’ expectations.

Chambers wants to cut annual expenses by US$1 billion, or about 6 percent. He did not say how many jobs he is aiming to eliminate, mainly through an early retirement program, but if the percentage is similar to the cut in expenses, it could amount to between 4,000 and 5,000 of the company’s 73,400 employees.

Cisco last embarked on a belt-tightening program two years ago in the depths of the recession. The goal then was also to shave US$1 billion of annual expenses, which it did by cutting travel, freezing hiring and instituting a similar early retirement program. The company lost 2,000 employees before it started hiring again.

This time, the cost cuts are meant to address long-term challenges, not a short dip in the economy.

The company may also sell or close under-performing units, Chambers said, much like a month ago when it announced it was killing the Flip Video camcorder, a product line it bought just two years earlier. The move was part of a partial pullback from the consumer market, which Cisco has tried to court for years.

Another problem area is network switches, Cisco’s largest single product segment, where competition is quickly driving down prices. The firm’s revenue from the segment fell 9 percent in the first quarter.

The company is introducing new products quickly to fight back, Chambers said.

“We know what we have to do. We have a clear game plan,” he told analysts on a conference call. “We’ve had to make big changes before, and each time we’ve made these changes, we’ve emerged even stronger.”

For the fiscal third quarter, which ended on April 30, Cisco said net income declined nearly 18 percent to US$1.8 billion, or US$0.33 a share. Sales rose 5 percent to US$10.9 billion, matching analyst expectations.

For the current quarter, Cisco expects earnings of US$0.37 to US$0.39 a share, while analysts were expecting US$0.42 a share. The company expects revenue to be unchanged from last year or up to 2 percent higher, while analysts were looking for a 7 percent increase.

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