Cisco Plans $1B in Cuts by October, Layoffs Likely

By Jessica Davis

Cisco Systems (NASDAQ:CSCO) plans to cut $1 billion in costs from its fiscal 2012 run rate as it seeks to right itself, according to CEO John Chambers who addressed analysts in a conference call following the company’s third quarter earnings release May 11.

Most of the $1 billion in cost cutting will be executed by the end of the first quarter of fiscal year 2012, according to CFO Frank Calderoni. But Cisco executives declined to comment on how much of that $1 billion would come from early retirement programs, citing the sensitivity of employment issues and workforce cuts.

Chambers acknowledged that although Cisco had already started the process of fixing the problems, much work remains ahead including "streamlining our organization and overhauling our business model dramatically."

That includes divesting or exiting underperforming operations, Chambers said, a process that is already underway as Cisco shutters the Flip camera business and consolidates other consumer products under other divisions.

Cisco reported third quarter net income of $1.8 billion ($2.3 billion non-GAAP) on net sales of $10.9 billion. The sales number represented an increase of 5 percent year over year. Earnings per share are expected to be between 37 cents and 39 cents, including charges for restructuring.

Cisco expects fourth quarter revenue to be flat to up 2 percent year over year.

Cisco’s Chambers said that the company continued to deal with challenges in switch margins and that the government market was undergoing big changes that were only just beginning.

But on the bright side Chambers said that its TelePresence solutions have reached an annual revenue run rate of $1.15 billion. And the company’s cloud and virtualization business is approaching a $1.6 billion annual revenue run rate. The company’s UCS data center business saw an increase in customer base by 1,570 in the third quarter to total 5,400 customers.

"We are rapidly gaining market share in the data center as networking, storage and compute comes together," Chambers said.

This article was originally published on 2011-05-12