Cisco changes take time

Cisco Systems’ rumored job cuts of up to 10,000 globally are expected as the networking giant had warned earlier of impending cost-cutting measures, noted an industry watcher.

In an e-mail interview with ZDNet Asia, Ovum principal analyst Jens Butler said there would “not really” be any surprise if Cisco issues pink slips, as savings and restructuring were “on the cards” as indicated during its third quarter results announcements in May.

“Even though it posted slightly better-than-expected results for its fiscal third quarter ended Apr. 30, [Cisco] also issued lower-than-expected Q4 guidance and said it plans to cut expenses by US$1 billion by the end of the 2012 financial year,” said Butler. “That will include reductions of both the employee and contractor workforce, although the company gave no details on how many people will lose their jobs.”

Reports surfaced last week that the company has plans to axe as many as than 10,000 jobs. A Singapore-based Cisco spokesperson confirmed in an e-mail to ZDNet Asia that the job cuts were in line with the its announcements in May. He added that the company will share more details on the cost reductions, including layoffs, during its earnings call on Aug. 11.

According to Butler, the job cuts are part of Cisco’s overall program which aims to build a company that is “simpler to deal with”, is able to drive faster innovation and with simplified operations.

However, he noted that whether the changes will bring about increased profitability will be evident only after at least several quarters. “Such changes across such a larger and diversified organization are complex and will take time, given the levels and depths of stakeholders that need to be communicated with,” he explained.

While the effects will not be visible in the immediate term, Butler said Cisco is refocusing and emphasizing on its core capabilities. The company is also specifically targeting areas it sees great potential, such as collaboration, data centers and virtualization and video, he added.

In a research note dated Jul. 13, Butler said Cisco’s greater emphasis on its core competencies and cleaner engagement model with the multiple layers of its partner ecosystem shows the company is listening to and adapting to market dynamics “rather than attempting to force the market on its own”. His observations were based on his attendance at the Cisco Live customer and partner event last week in Las Vegas.

Another industry watcher also welcomed Cisco’s strategy change. In a blog post published last Friday, Forrester principal analyst Henry Dewing, who also attended the Cisco Live event, claimed that Cisco CEO John Chambers “has a clear vision of where Cisco needs to go and how to get there”.

Dewing added Cisco “is sounding very much like a mature market leader as it balances risks and rewards in the rapidly changing markets for networking and collaboration”.