Cisco to reduce headcount by 6,500 to trim $1.3B in costs

Cisco Systems (Nasdaq: CSCO) finally came clean with its official plan to cut 6,500 workers, or 9 percent of its employee roster, in an effort to take over $1 billion of costs off its books.

Alkesh Shah, an analyst at Evercore Partners, said that "Cisco recognizes that it's in an increased competitive environment and it needs to lower its costs."  

A rumor emerged last week that the router giant, which has lost its profitability course in recent years due to a number of acquisitions in areas outside of its core business in video phones and set top boxes (STB), would cut 10,000 jobs.

Cisco said in a statement yesterday that about 2,100 employees have opted to take an early retirement package, while the remaining amount will be redundancies.

When the process is complete, Cisco will save about $1.3 billion with $750 million to be recorded in fiscal Q4 2011 and the rest in fiscal 2012.

In addition, Cisco plans to sell its Juarez, Mexico plant that it gained from its acquisition of the former Scientific Atlanta to contract manufacturer Foxconn. The 5,000 employees that work at the plant will be transferred to Foxconn.

The layoffs are part of a broader effort by Cisco's CEO John Chambers to exit poorly performing business such as its Flip Camera and refocus its attention on its core routing and switching business. In recent quarters, Cisco's routing and switching market share has declined as rivals'--Juniper Networks (NYSE: JNPR) and Hewlett Packard (NYSE: HPQ)--have increased.

According to the Dell'Oro Group issued in May, Cisco's worldwide switching revenue dropped "5.8 percentage points to 68.5 percent in Q1 2011" over the first quarter of 2010.

For more:
- Bloomberg has this article

Related articles:
Cisco could axe 10,000 employees to trim costs
John Chambers, Cisco: Wireline's most powerful people
Cisco's Chambers plans to overhaul company focus
Cisco needs to put focus back on its routing business, say analysts

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