According to The Wall Street Journal (WSJ), Cisco has started a new round of layoffs in the face of slowing sales due to global economic headwinds. The WSJ report said Cisco, which has about 75,000 employees, declined to say how many employees would lose their jobs or what areas of Cisco would be impacted.
"This is part of an ongoing process of aligning our investments and resources to meet the evolving needs of our customers and partners," Cisco said in an email statement to FierceTelecom. "Our continued focus is on transforming Cisco and driving the innovation that will secure the long-term, profitable growth of the business. We will always offer our full support to impacted employees."
In previous earnings calls, Cisco CEO Chuck Robbins has downplayed the significance of the trade tariff wars with China, and said that while Cisco didn't have a large presence there, it had factored a China slowdown into its guidance.
On a global scale, Cisco, like other telecommunications companies, needs to gauge the potential impact of the coronavirus on bottom line. Over the past year, Cisco has also been faced with lower orders from emerging markets, and slower service provider revenues.
During its second quarter earnings call earlier this month, Cisco reported that product orders fell 6% annually, after dropping 4% in the October quarter. Cisco's shares dropped nearly 6% the morning after its second quarter earnings call, during which it issued guidance for revenue to be down 1.5% to 3.5% (annual rate) during its April quarter.
Cisco has started a restructuring plan that could lead to pretax charges of about $300 million, including severance payments, according to the WSJ. Roughly half that amount would occur in Cisco's current quarter.
“Cisco recently had a tough quarter and with very low to neutral growth, most of its profit gains have come from expense cuts. So it wouldn’t surprise me to see layoffs," said Scott Raynovich, the founder and chief analyst of Futuriom, in an email Friday morning to FierceTelecom.
At the Goldman Sachs Technology and Internet Conference 2020 in New York earlier this month, Robbins said that that issues such as Brexit, trade wars with China, the impeachment trial of President Donald Trump, and most recently, coronavirus fears have combined to cause Cisco customers around the world to move more slowly with their spending. With that backdrop of global uncertainty, Robbins said at the conference that some customers were merely “tapping the brakes” on capital spending.
In terms of growth, nearly all of Cisco's product segments except for cybersecurity showed negative growth in the second quarter. Cisco has placed a large bet on its new Silicon One chip business, as well as integrating several acquisitions of optical companies.
In August, Cisco axed 488 employees, according to a filing with the State of California. The networking giant let 397 employees go from its San Jose campus, which serves as Cisco's headquarters, while another 91 workers in Cisco's Milpitas office also lost their jobs.
Cisco has been making the transition from being a hardware company that sells routers and switches to one that sells software licenses and services. In 2017, as part of its pivot to being more of a software-driven company, Cisco cut 1,100 employees from its workforce.
Those cuts, which were part of a broader restructuring plan that was announced during its third quarter fiscal year 2017 earnings, came on top of the 5,500 layoffs Cisco announced in August 2016. While those job reductions from several years ago seem large, Cisco has no doubt hired additional employees in other software-related areas.
Increased automation has also led to layoffs or retraining in the telecommunications industry. AT&T cut 4,040 jobs in its most recent fourth quarter while VMware laid off employees in January as part of its "workforce rebalancing," but didn't say how many.