Cisco laying off 170 in RTP

Companywide, 2,100 are taking early retirement. Analysts expect further rounds of cost-cutting.

Staff WriterAugust 11, 2011 

Cisco Systems, one of the Triangle's biggest employers, said Wednesday that it notified about 170 employees in Research Triangle Park that they will be laid off. Some say this could be just the first phase of the company's move to slash global operating expenses by $1 billion next year.

The Silicon Valley computer networking giant also said 2,100 employees companywide have agreed to take early retirements and 1,200 contractors are slated for elimination. Cisco did not disclose RTP-specific details.

Many of the affected workers won't leave until the first quarter of 2012, suggesting that the head count at Cisco's RTP complex could go down by several hundred from a peak of 4,900 this summer. Cisco is focusing the cuts on mid- and upper-level managers, some of whom have risen through the ranks to higher pay scales.

The company has said it expects to shed about 6,500 workers globally to reduce overhead and adjust expenses to new economic realities, but some analysts say that target will be tested by the relentless economic pressure Cisco faces.

"There's more coming," said analyst Joanna Makris of Mizuho Securities USA in New York. "They were very coy about additional restructuring. There seems to be a consensus that more needs to be done."

The company made the staff cut disclosures in connection with a fourth-quarter earnings release, in which Cisco beat analyst expectations and calmed investor anxiety after a string of weak quarters.

Cisco CEO John Chambers said during a conference call that the staff cuts position the company for revived growth and profitability. Chambers projected first-quarter growth at an anemic 1 percent to 4 percent as governments worldwide reduce spending on computer networking equipment amid budget crunches.

The volatile stock market presents further uncertainty, prompting Chambers to hedge and set low expectations for the coming year, Makris said.

For the fourth quarter, Cisco reported a 3.3 percent increase in sales, posting $11.2 billion for the quarter. It released earnings after the close of regular trading.

Net income was down 12.4 percent, to $2.2 billion, largely because of restructuring charges associated with the layoffs and buyouts. Cisco expects to pay $1.3 billion in charges for severance and other payments, more than half of which were logged in the fourth quarter.

Cisco stock was down 43 percent for the year, closing at $13.73 a share Tuesday, but surged in after-hours trading.

Chambers said Cisco takes advantage of market disruptions to beat up the competition, but some of the pain is inflicted on Cisco employees, while the architects of the restructuring look for new ways to squeeze costs.

"There's a lot of malaise in the organization," Makris said. "Not a happy place to work right now."

Head to head with HP

Chambers said Cisco has no choice but to cut costs so it can reduce its prices and undercut competitors. As it vies against rivals Hewlett-Packard and Juniper Networks, Cisco this year has closed its Flip video camera business and closed a manufacturing facility in Mexico to better focus on its core business of routers and switches.

Meanwhile, HP has been courting Cisco's customers with discounts for switching from Cisco products to HP technology.

"They streamlined the company so they can go to the death with HP on pricing," said Joel Achramowicz, an analyst in Oakland, Calif., with the Blaylock Robert Van firm. "This is an epic battle." or 919-829-8932

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