Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Cisco’s Big Layoff Only Weeks Away, Gleacher Analyst Says

Networking giant Cisco Systems is weeks away from announcing one of the biggest workforce reductions in its history. It could cut as many as 5,000 jobs — or nearly seven percent of its headcount — according to a note from analyst Brian Marshall at Gleacher & Co. in San Francisco.

A workforce reduction of that size, which Marshall expects will take place sometime in August, would reduce Cisco’s operating expenses by $1 billion per year. This would in turn add eight percent to Cisco’s expected per-share earnings in the 2012 calendar year.

Cisco has been talking about this pending reduction for a few months now. The number of people who will be fired will be determined by the number who qualify for and seek an early retirement package: Marshall expects about 1,000 to take a buyout and 4,000 to be fired. After the cuts, Cisco’s headcount would be 73,400.

The cuts, Marshall says, are the third in a series of necessary steps to get Cisco competitive again. The first two were reorganizing Cisco’s consumer business — including the infamous and unceremonious killing of the Flip videocamera line — and a corporate-wide reorganization announcement in May.

Still, there’s one other big step that Cisco needs to take, Marshall argues: It must formally lower its long-term financial targets and set more realistic growth projections. Cisco has generally projected annual revenue growth in the range of 12 to 17 percent. It has averaged 11 percent over five calendar years. Cisco should level with investors, Marshall says, and tell them to expect revenue growth of about 10 percent a year plus or minus three points, and also lower its projected operating margins from the 28-31 percent range to about 25 percent plus or minus three points.

Once the cuts are done and expectations lowered — which he expects in September — Marshall says he’d be “more constructive” on Cisco shares. Cisco fell 14 cents on Friday, closing at $15.74. The shares have fallen more than 22 percent so far this year.

One more thing: Cisco is holding its “Cisco Live” event in Las Vegas this week, and CEO John Chambers is giving a keynote tomorrow. He’s likely to focus on new products and initiatives for the coming year, rather than dwell on what a tough year it’s been so far, and maybe give investors something new to think about.


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