Why is Cisco Cutting Jobs?

August 31st, 2014
in contributors, syndication

Written by , GEI Associate

Cisco Systems, Inc. has announced that it will cut up to 6,000 jobs, which is 8% of its worldwide work force, at a conference call on Wednesday 13 August 2014. The occassion was discussion of the company's fourth quarter fiscal 2014 earnings and revenue.


Follow up:

Cisco reported $12.36 billion in fourth quarter revenue, beating analysts' estimate of $12.15 billion. That figure comes out to earnings of 55 cents a share, two cents higher than what analysts expected. The fourth quarter revenue of $12.36 billion represents a 0.5% fall compared to last year's $12.42 billion.

Why did Cisco decide to let go so many employees despite beating analysts' estimates? The reason is the company's downward spiral regarding its annual revenue and net income. Its revenue fell by 3% from $48.61 billion fiscal year 2013 to $47.1 billion fiscal year 2014 while its net income fell by 21% from $9.98 billion fiscal year 2013 to $7.85 billion fiscal year 2014. A large part of Cisco's struggles are attributed to tanking sales in emerging markets, with the biggest drops witnessed in China.


Another noteworthy fact from Cisco's financial summary was the large difference between its GAAP and non-GAAP net incomes fiscal year 2014. Its GAAP net income was $7.9 billion while its non-GAAP net income was $10.9 billion, creating a difference of $3 billion. There were some significant one-time charges that can explain the large difference, like faulty memory components in some of its products that cost $655 million in remediations and acquisitions of some companies which include Assmblage, Tail-f Systems, and ThreatGRID.

Cisco Systems, Inc. (NASDAQ:CSCO) over last 3 years, provided by Yahoo Finance:


Cisco was not overly optimistic in regards to its first quarter fiscal 2015 revenue, which it estimated to be flat or grow by 1% at most when compared to a year ago.

Cisco is well aware of the fast-changing Internet world that demands more sophisticated software over hardware and has been shifting its business focus accordingly. Last year it acquired the network security firm SourceFire for $2.7 billion.

John Chambers, Chairman and CEO of Cisco, said in a statement on after the company's recent earnings announcement:

"I'm pleased with how we are transforming our company over the past several years and that journey continues. We are focused on growth, innovation and talent, especially in the areas of security, data center, software, cloud and internet of everything. Our strategy is sound, our financials are strong, and our market leadership is secure."

Cisco has seen a large drop in income (21%) for a small decline in revenue (3%). The outlook is for little revenue growth in the coming quarter. That is the reason for the drastic move to cut expenses; it is an attempt to recover some of the lost earnings during a revenue growth drought. And the driest parts of the company appear to be in emerging markets which are likely to see the biggest manpower hits.



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