Cisco to axe 6,000 jobs but CEO Chambers sees SDN as a future bright spot

Cisco said it will cut 6,000 jobs, or 8 percent of its workforce, as it forecasted tepid growth going forward. However, CEO John Chambers said he thinks the shift in the network infrastructure market to software-defined networking will benefit the vendor.

cisco john chambers

Chambers

The job cuts come on top of 4,000 cuts, or 5 percent of Cisco's workforce, that were announced in August 2013. Cisco said it expects to record pretax charges of up to $700 million to cover the costs of the latest restructuring.

In an interview with the Wall Street Journal, Chambers said the cuts are designed to let workers with different kinds of skills into the business rather than cutting total costs. The company is focused on adding jobs in parts of the business that are growing, he said.

"We will exit this year pretty much with the same number of people we started the year with," Chambers said. "Some groups will not be affected at all. Others will."

Cisco said it plans to add jobs in areas that include its data center, software, security and cloud offerings. Chambers declined to say which units will be hit hardest by the latest cuts before workers are notified, but told the Journal examples could include sales representatives in countries where sales are falling.

In its most recent quarter Cisco said its wireless business grew just 1 percent, with orders up 8 percent. The company saw weakness in its service provider segment but saw continued adoption of its 802.11ac portfolio in both its enterprise and cloud managed network businesses.

Yet according to a recent Bloomberg report, top enterprise customers such as Verizon Communications (NYSE: VZ), Goldman Sachs and Coca-Cola are pushing Cisco to more forcefully embrace SDN, which separates the control plane from the data plane in network switches and routers. The end result is that it makes networks more efficient and versatile and reduces the need to have purpose-built hardware.

On the company's earnings call, Chambers extolled the benefits of SDN and said that "those of you who are out there who think SDN is going to drive down our gross margins, in my opinion, you're just wrong. You're going to see us embrace SDN, you're going to see us implement it for the value that it has. We not only will lead with this implementation, it will allow us to get higher gross margins on our switching and architecture."

However, Cisco still faces challenges. For instance, its service provider video business fell 10 percent in the last quarter. "Even if the transition to a more software-oriented business model is successful, revenues are going to come under pressure," Brian Marshall, an analyst at International Strategy & Investment Group, told Bloomberg. "Unfortunately, headcount reductions are going to be a thing of the future."

Cisco said revenue in its fiscal fourth quarter, which ended July 26, came in at $12.4 billion, topping analysts' estimates of $12.2 billion but flat on a year-over-year basis. The company said net income was $2.8 billion, also flat from a year ago. Looking ahead to its fiscal first quarter, Cisco predicted flat to 1 percent growth in revenue for the period.

For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this Seeking Alpha transcript

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