DailyTech - Cisco Revenue Misses Wall Street Expectations, May Cut Jobs

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Hardware Cisco Revenue Misses Wall Street Expectations, May Cut Jobs
Shane McGlaun (Blog) - February 5, 2009 10:18 AM

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17 comment(s) - last by bongsi21.. on Feb 6 at 11:20 AM

Cisco may cut up to 2,000 workers

Major technology companies have set a trend of announcing cuts and missed profits that have left many consumers in the U.S. more than a little jaded. Some of the largest firms in technology industry are forced to make significant job cuts and reorganize in an attempt to become profitable again.

The latest technology company to announced missed earnings and job cuts is Cisco. Cisco CEO John Chambers announced a forecast that called for a far greater decline in revenue for the firm's current quarter than analysts on Wall Street expected. Predictions were that Cisco would see a 10.5 percent decline in revenue and Chambers' forecast calls for a decline of 15 to 20 percent.

Cisco reports that it may initiate job cuts that would see about 1,500 to 2,000 workers heading to the unemployment line. Chambers says that the current weak economy is spreading beyond the U.S. and Europe as evidenced by Cisco's emerging markets revenue falling 11 percent for its fiscal second quarter ending January 24, 2009.

Cisco's financial report is being looked at closely by Wall Street as an indicator of what to expect from much of the technology industry. Cisco is the first major technology firm to report financial numbers that include most of January 2009.

The current total number of Cisco employees according to Chambers is 67,318. He says that the firm is not yet in a position where mass layoffs are needed. Chambers puts the figure for mass layoffs at 10 percent of Cisco's workers, which would amount to over 6,700 employees.

Part of the bleak outlook for Cisco is due to the tighter credit and poor economic outlook that has many companies not investing in expensive technology items like Cisco routers. A single Cisco CRS-1 router costs from $500,000 to $1 million according to InformationWeek.

Chambers maintains that Cisco is on target for its long-term annual revenue growth of 12 to 17 percent if the economy returned to a normal growth rate. That is not something predicted to happen quickly.

In May of last year a number of counterfeit Cisco products were found to be in use inside secure U.S. networks.

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Same old same old

By theapparition on 2/5/2009 10:23:41 AM , Rating: 2

Another day, another company cutting jobs.

Let me guess, tomorrow headlines will be the same.

RE: Same old same old

By acase on 2/5/2009 10:37:13 AM , Rating: 2

Yah, the real news I wanna read about is if a company is making a profit and hiring. Now THAT would be something.

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RE: Same old same old

By quiksilvr on 2/5/2009 11:41:14 AM , Rating: 2

Last I heard HP actually made a profit last year.

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RE: Same old same old

By Murloc on 2/5/2009 12:19:41 PM , Rating: 2

there are companies like that, but they are not the big tech companies dailytech usually speaks about.

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RE: Same old same old

By acase on 2/5/2009 12:35:53 PM , Rating: 2

Yah I know. Actually the company I work for, Butler International, is like that. But agreed, you definately won't hear about that on DailyTech.

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RE: Same old same old

By consumerwhore on 2/5/2009 1:23:52 PM , Rating: 4

That would be nothing. What would be something is a CEO/board going "F*ck you, Wall Street, we do what we want with our employees because they're not commodities that expire every three months."

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RE: Same old same old

By Lord 666 on 2/5/2009 12:41:33 PM , Rating: 2

Have to break my DT sabbatical for this one...

What isn't mentioned in this DT article is the trickle down effect this will have on both Cisco partners and other lines of business that have built themelves around a single company.

Over the past several years, Cisco has moved to a model where it stands next to their partners for installation services and Day two support. While Cisco still has their Advanced Services division, much work has been offloaded to Cisco partners.

Following that model, most projects at the partner level require Pre-sales, Project Management, Engineer, and then day 2 support. With the projects decreasing, the required head count at partners will be much less resulting in greater losses of jobs.

With Cisco installations decreasing, there will be much more losses to follow and definitely one or two large Cisco partners will dissapear or be swallowed up.

PS - This is specifically for apparition... found this article that circle's back to the thread about childhood...

"Entrepreneurs tend to have a singular weakness that allows them to do things without checking their conscience," Zaleznik said. "Juvenile delinquents act and then try to sort things out afterward. I think entrepreneurs have this tendency"

http://www.cnn.com/2009/LIVING/worklife/01/12/entr...

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RE: Same old same old

By theapparition on 2/5/2009 12:58:13 PM , Rating: 2

Wow,
Got to you on extended DT vacation! Guess your Lord 667 now!

Yes, I agree with your link. Something in my head is definately broken.

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RE: Same old same old

By chrnochime on 2/5/2009 5:45:20 PM , Rating: 2

According to what you say with Cisco now offloading much of the work, the current decrease in demand for new network projects would affect partners much more than before. Even without the offloading of work from Cisco, partners would be foolish to rely heavily on work from Cisco and be greatly affected. They would be wise to keep their own established customer base as a large % of their total income. Any good sized company still definitely need second day coverage(unless you want to risk having your customer not consider you in the future), and to a lesser extent, pre-sale. However, saying partners have to sharply decrease their work force just because of this decrease in offloaded projects is not quite correct; the current economy would dictate that regardless.

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RE: Same old same old

By bongsi21 on 2/6/2009 11:20:18 AM , Rating: 2

Are there numerous stupid managers out there or what?

quote:
Why can't they understand that the whole world is on recession

, if they miss the target income their solution is to cut jobs. Their not aiming for the root cause of the problem. Instead of cutting jobs and have short-term solution. Why not improve their strategy and adopt to the global economy/consumer.

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Net Income of 2 billion dollars? You're all fired!

By DaveSylvia on 2/5/2009 11:11:02 AM , Rating: 2

I'm not a financial expert at all and so please feel free to correct me if I'm wrong. However, based on the Cisco's own financial report, they had a net income of $2 billion. And because they didn't make 'as much' this is now grounds for layoffs. THEY STILL MADE MONEY AND QUITE A BIT OF IT. That just seems wrong to me. But not at all wrong to the stockholders who demand maximum dividends at all cost.

RE: Net Income of 2 billion dollars? You're all fired!

By Steve1981 on 2/5/2009 12:56:39 PM , Rating: 3

quote:
But not at all wrong to the stockholders who demand maximum dividends at all cost.

Remember, businesses are not charities. A business such as Cisco exists solely to generate ROI for its shareholders. That Cisco sells networking equipment and employs people is just a means to that end.

With that in mind... Its obviously never a bad idea to make sure your company is running efficiently, and cutting a little fat is hardly a bad thing. However, stating that your company is going to lay off a couple thousand people because you failed to meet a revenue target (especially during a recession) tends to be bad for business in the long term. You will undoubtedly lower employee morale. You will also make it harder on yourself to meet demand when it does eventually pick up: you have to hire and train new people, and you risk losing market share over the long haul if a competitor maintained some excess capacity during the recession and is able to jump quicker when demand is restored.

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RE: Net Income of 2 billion dollars? You're all fired!

By juserbogus on 2/5/2009 1:49:57 PM , Rating: 2

you are right, but where is the foresight? with all these big still profitable companies (emc,ibm,microsoft,cisco...) laying off people, who is going to buy any products? in the end, these companies are just helping extend this downturn. this is just a proof that trickle down doesn't work as the people/companies with money tend to hoard it in times like these instead of spend it.

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RE: Net Income of 2 billion dollars? You're all fired!

By Steve1981 on 2/5/2009 2:28:03 PM , Rating: 2

quote:
but where is the foresight?

That's the trillion dollar question.

quote:
with all these big still profitable companies (emc,ibm,microsoft,cisco...) laying off people, who is going to buy any products? in the end, these companies are just helping extend this downturn.

What we're dealing with is a conflict of microeconomics and macroeconomics. Is it the right decision for these companies to trim down on an individual basis? Potentially. No business ever got hurt cutting dead weight. Is it good from a macroeconomic perspective that they all do so at once? Obviously not. In either case, I won't blame Cisco, as it is hardly their fault that the economy seems to be stuck in a negative feedback loop, although I might disagree with their decisions.

quote:
this is just a proof that trickle down doesn't work as the people/companies with money tend to hoard it in times like these instead of spend it.

Ultimately, this recession has little to do with tax breaks for the wealthy, and the benefits to economic growth that might bring.

It has far more to do with people spending outside of their means, financial institutions making stupid choices, government making stupid choices, etc.

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RE: Net Income of 2 billion dollars? You're all fired!

By Regs on 2/5/2009 11:00:19 PM , Rating: 2

You guys are forgetting one huge factor - Creditors. Where do you think these huge company's get their money from? How much did AMD borrow from a Bank before buying ATI? What do you think creditors, suppliers, partners, joint venture opportunities stem from? Your ability to generate revenue!!

A bank is not going to give you a loan if you're not making income, a creditor or supplier is not going to extend you credit or favorable terms on any deal or contract if you're operating in the red or even holding bottom line.

A public owned corporations life blood is growth. If you're not growing stock holders bail, employees don't get raises or promotions, investments on future technology or developments get stalled.

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RE: Net Income of 2 billion dollars? You're all fired!

By Regs on 2/5/2009 11:22:06 PM , Rating: 2

Maybe I can elaborate more.

Think about money, but on a much smaller scale. Lets say your own income for instance. What's money sitting in a bank? It's doing nothing, because money is only for the exchange of something else you need. So you're still living in a one bed room apartment with 4 kids, a wife, and a dog which are starving because you don't buy enough food.

Ok, now lets make the situation more comparative. Your income rises and you buy a larger house, more food, more cars, more health care, and more investments/securities for your children's future (college) and so fourth. You can't initially pay all of this at once of course so you take out a loan and mortgage. The loan is payment over many years, so obviously your own personel balance sheet for the year is not going to debt out a loan for 800,000 thousand dollars, but only for the amount you owed that year. All financial statements you see from corporations are on a accrual basis. Please take the time to look up the term accrual - it's important part of understanding these financial statements.

So lets say you found another job opportunity out in California with better schools for your kids. You have a chance of promoting your career and you like the prospects. Though a house out in California costs four times as much as your current house.

This is the current dilemma facing many organizations in intervals. You know without sacrificing something, you won't be able to move out to California that will be better for both you and the kids. You will find it hard pressed to establish another loan without establishing more income and assets to prove a bank that your worthy. So lets take this example and put it on a quasi-corporation level. You're Cisco and your financial statement is displayed publically required by law and a bank looks at it or other financial firm and sees that you're actually losing money. I don't know about you, but in the banks best interest after losing so much money all ready, is not going to make the deal.

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expectations

By Screwballl on 2/5/2009 10:49:33 AM , Rating: 2

so rather reply on "Wall Street Expectations" just handle the employment situation as the sales and economy dictate, not based on whether you meet Wall Street expectations.