Networking giant Cisco took at whack at its labor costs Monday, announcing that it will cut 11,500 jobs, or 16% of its workforce as part of an effort to slice $1 billion from the company’s annual operating expenses.
Cisco will lay off 4,400 employees, another 2,100 workers opted for voluntary retirement packages, finally Cisco will shed an additional 5,000 jobs as part of a deal to sell a Juarez, Mexico set top box factory.
The cuts hint that Cisco is streamlining the complex management structure it adopted several years ago as part of the San Jose, California-based company’s effort to find growth opportunities in everything from online conferencing to digital video cameras.
The job cuts will reduce the number of employees with the rank of vice president or above by 15%, a Cisco spokesperson confirmed Tuesday*. The move also marks the end of a hiring and acquisitions spree that has added 10,000 employees since October 2010.
Shedding all those employees won’t come cheap. Cisco will incur pre-tax restructuring charges of no more than $1.3 billion over “several quarters,” the San Jose, California-based company said in a statement. $750 million in charges, including $500 million related to the company’s early retirement program, will be recognized during Cisco’s current quarter.
The San Jose, California-based company also announced the sale of a set top box factory in Juarez, Mexico to Taiwan’s Foxxconn Technology Group. The factory’s 5,000 employees will become Foxconn employees as of the first quarter of Cisco’s 2012 fiscal year, which begins in August.
While analysts praised the job cuts, analysts pointed to challenges from rivals such as Huawei, Alcatel-Lucent, and Juniper Systems.
“[The] greater challenges the company faces are slwing growth and defending of its core switching and routing market, which will likely be a multi-quarter or multi-year process to turn-around, in our view,” Citi analyst John Slack wrote in a note to investors Monday.
Cisco shares fell $0.15, or 0.99%, to $15.44 in Monday trading.
The full release, below:
Cisco Announces Additional Detail on Comprehensive Action PlanSAN JOSE, CA--(Marketwire - Jul 18, 2011) - Cisco (NASDAQ: CSCO) today announced additional details of its comprehensive action plan to simplify the organization, refine operations, and reduce annual operating expenses.
Workforce Reduction of Approximately 6,500 Employees
As part of the company's $1 billion annual operating expense reduction, Cisco will reduce its global workforce across all functions by approximately 6,500 employees, which includes approximately 2,100 employees who elected to participate in a voluntary early retirement program. This also includes a reduction totaling approximately 15 percent of vice president level and above employees. This represents a reduction of approximately 9 percent of Cisco's regular full-time workforce. All affected employees will receive severance pay and outplacement assistance.
Impacted employees in the United States, Canada and select countries will be notified during the first week of August. The remainder of the global workforce reductions are expected to occur at a later date in compliance with local laws and regulations.
In connection with this plan, Cisco estimates that it will recognize total pre-tax restructuring charges to its GAAP financial results in an amount not expected to exceed $1.3 billion over several quarters, consisting of severance and other one-time termination benefits. Substantially all of these charges are cash-based. Cisco expects that approximately $750 million of these charges will be recognized during the fourth quarter of fiscal 2011, including approximately $500 million relating to the voluntary early retirement program. The remaining balance of the charges is expected to be recognized during fiscal 2012.
In connection with Cisco's continued implementation of its comprehensive action plan to simplify the organization, refine operations, and reduce annual operating expenses, it is anticipated that Cisco will recognize other restructuring charges to its GAAP financial results. These additional charges will be disclosed in earnings conference calls and in Securities and Exchange Commission filings.
Manufacturing Facility Sale to Include Transfer of Approximately 5,000 Employees
Cisco also announced earlier today an agreement for sale of its set-top box manufacturing facility in Juarez, Mexico, to Foxconn Technology Group. The approximately 5,000 people employed at the facility will become employees of Foxconn in the first quarter of fiscal 2012 and no job losses are expected as a result of the sale. This figure is in addition to the approximately 6,500 employees impacted by the reduction in workforce and the voluntary early retirement program. While this action is expected to create improvements to Cisco's long term cost structure, the strategic intent for this action is to simplify business operations. The labor cost associated with these employees has been categorized as manufacturing costs.
Forward-Looking Statements
This press release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the timing of reduction in force, the amount of related charges, Cisco's planned annual operating expense reduction and Cisco's sale of its set-top box manufacturing facility. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: Cisco's ability to implement the workforce reductions in various geographies; possible changes in the size and components of the expected costs and charges associated with the plan; risks associated with Cisco's ability to achieve planned reductions; and Cisco's ability to execute the sale of its set-top box manufacturing facility. For information regarding other factors that could cause Cisco's results to vary from expectations, please see the "Risk Factors" section of Cisco's filings with the Securities and Exchange Commission, including its most recent quarterly report on Form 10-Q. Cisco undertakes no obligation to revise or update publicly any forward-looking statements.
About Cisco
Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.
For direct RSS Feeds of all Cisco news, please visit "News@Cisco" at the following link:
*An earlier version of this article inaccurately characterized how Cisco's cuts will impact its total number of employees with the rank of vice president or above.
There are no comments yet