Is Cisco Having More Layoffs? (CSCO)

Cisco Systems, Inc. (NASDAQ: CSCO) may be back to conducting layoffs.  A report from Thomas Weisel says that Cisco is in the process of cutting another 1,500 to 2,000 workers as it looks to squeeze expenses further by another $200 to $250 million.   If the report is true, this would at least on the surface be contrary to what the company has said in recent months.

It was just in May during the company’s conference call where management (CEO John Chambers) said that the company was going to be able to avoid layoffs on a major scale.  The signal was that Cisco could avoid serious layoffs and pay cuts.  It was also just in February when the company named a new EVP of Worldwide Operations, and the WSJ gave a figure of 250 or so workers being cut at the headquarters level.

Early this year, we thought that Cisco would be one of the top 10 large companies that could avoid further layoffs. With the mountain of cash it has and with the expansions it plans into new areas, there was even a notion that Cisco might be growing its ranks.

The Thomas Weisel report was not clear if this was part of existing cuts or if these were new cuts.  The belief is that this will put the company ahead of its $1 billion in annual cost reductions.  More importantly, the report noted that the July-end quarter is tracking well for Cisco.

If the company is cutting costs above and beyond what is expected and if the quarter is tracking well, it might lead one to wonder if Chambers and friends at Cisco are worried about this low-grade recovery or stabilization turning back into a double-dip.  This notion gets more interesting if you look at this year’s revenue expectations to next year.  July is the fiscal year-end, and Thomson Reuters’ consensus estimate shows that analysts expect $36.06 billion for trailing 12 month revenues.  Those estimates for fiscal July-2010 are only $35.68 billion.  Those numbers compare to $39.54 billion for 2008 and $34.922 billion in 2007.

There is another notion here that few have tied to this.  Nortel is essentially dead, although being bankrupt does not mean that it is entirely non-operational.  After its bankruptcy, our own nickname for the company is “No-Tell.”  If that competition is all but dead, maybe Cisco can squeeze some departments’ ranks now that there is for all practical purposes one less large competitor.

We have tried to inquire into contacts at the company to get further data on this matter.  Unfortunately, that has so far not yielded anything solid as of yet.

It is another Friday during a recession and during a time when small companies and large companies are still trimming their payrolls.  That means there is always at least a chance of one thing even for productive workers: pink slips.

Jon C. Ogg
July 10, 2009