Big Layoffs Ahead for Cisco After Earnings Report

By Steve Anderson August 14, 2014

While the news didn't seem all that bad out of Cisco's quarterly earnings report—a decline in sales that was smaller than expected, earnings and revenue that beat expectations, though not by much—the news was apparently enough to prompt some big changes in Cisco's overall operations, as the company announced plans to cut 6,000 jobs, which is approximately eight percent of Cisco's total workforce.

Cisco joins companies like Microsoft, who recently staged some massive layoffs of its own, in trimming workforces amid less than stellar earnings reports. The company reportedly expects adjusted earnings to reach from $0.51 to $0.53 a share, which approaches analyst expectations of $0.53 per share. Sales for the current quarter, meanwhile, are expected by an analyst polling from Thomson Reuters to hover between flat and up one percent, and fiscal first-quarter revenue is to remain relatively flat at $12.08 billion.

That in turn resulted in a share price drop of over two percent in after-hours trading, and the company's earnings were expected to rise a full percent year over year, which helped somewhat to drive share prices downward. However, the company also paid a cash dividend—$0.19 per share—and repurchased 61 million shares of common stock in its fiscal fourth quarter. Cisco is looking to the Chinese information technology (IT) market to recover some of its losses, but at the same time, Cisco is having difficulty getting into that market thanks to government restrictions on its operations. While the Chinese IT market is expected to reach $111.7 billion this year—up 7.1 percent from just 2013—it's tough to get into a market that's being actively opposed by the government in the region.

It's easy to look at this concept overall and wonder if it's not just a short-term gain being traded for a long-term loss; after all, Cisco getting rid of people doesn't exactly put it in a good position in terms of future expansions. It's going to be less able to take on growth prospects in the future, and less able to both create the products and services used today, as well as innovate the products and services that might have been used tomorrow. That's not a good long-term position to occupy, and Cisco needs to find some new markets to enter, and quickly, lest it find itself out of employees to lay off. However, layoffs do provide some rapid capital infusion—the loss of employees commonly means the loss of several accompanying costs--and if Cisco can put that new capital to work properly, it may be able to turn the situation around. We have video discussing Cisco and a variety of other subjects available at this link.

While the economic recovery is still perhaps best described as tenuous and sporadic, there's still a lot of room for possibilities out there. Cisco is just one firm among many, but one that can be great indeed if it uses the power of its collected minds on hand and brings us the next generation of valuable tools.

Edited by Adam Brandt

Contributing TechZone360 Writer

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