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Will Cisco Restructure Again?

If it's late summer, recent history suggests Cisco may announce job cuts.

Asa Mathat

As we head into Cisco’s fourth-quarter earnings report, the one question on everyone’s mind is: Is it time for the fourth annual bloodletting?

Cisco has been in what CEO John Chambers has characterized as a constant state of restructuring for about three years now, and has announced cuts in July or August of the prior three years: In July 2011 it cut 6,500; 1,300 more in 2012; and last August it cut 4,000.

Unconfirmed reports suggest another one is in the offing. The latest is from Israeli business newspaper Globes, which reported Tuesday that 300 of the 1,800 Cisco employees there are expected to lose their jobs starting in October. Cisco isn’t saying.

Then there’s the issue of Cisco’s performance. Analysts expect it to report a profit of 53 cents a share on $12.1 billion in revenue. After reporting disappointing results and a dour outlook in February, it bounced back a bit in May and the shares have risen by about 18 percent to hover at or near $26.

But sales have been on the decline. Last-quarter sales in its two biggest business lines, routing and switching, declined year on year by more than seven percent. Nearly every line of business saw sales declines, and the ones that grew — data center, wireless and security — weren’t big enough to make a meaningful difference.

That prompted the analyst Brent Bracelin of Pacific Crest Securities to downgrade Cisco shares to a rating of “market perform.” Bracelin argued in a July 27 note to clients that the shares were “fairly valued.” While well positioned to remain a key IT supplier to large companies and Internet and telecom service providers, key Cisco product groups like switching, routing and wireless infrastructure experienced sales declines. That, Bracelin wrote, raises the potential for a “prolonged product transition resulting in share losses for Cisco.”

Cisco has been under pressure to embrace new networking technology, specifically software-defined networking, or SDN. Cisco has traditionally put all of its secret networking sauce into specially designed chips. The problem is that when companies want to make significant changes to their networks, they have to swap in new equipment. Under SDN, which is being embraced by companies as varied as Hewlett-Packard, VMware’s Nicira unit and the startup Big Switch Networks, basic low-end hardware is loaded with specialized networking software. When changes are needed it’s simply a matter of changing the software while leaving the hardware in place. The equipment also tends to be less expensive. SDN has been seen as a long-term threat to Cisco’s core business.

Cisco has an SDN operation called Meraki, but its customers have been calling for the company to get more aggressive with the new approach to networking. In fact, there was a rare public call to do exactly that by the CIO of investment banking giant Goldman Sachs, Martin Chavez, in an interview with Bloomberg. Recalling a recent conversation with Chambers, Chavez was unambiguous: “What we spent on your gear last year is not what we’re going to spend on your gear this year, unless you do something really different.”

Chambers is, if anything, always willing to listen to his customers and to make the adjustments he thinks are necessary. He’s determined in his final years as CEO to get the company on a solid footing.

About that: There likely won’t be any comments about the pending leadership transition to a new CEO, though it’s worth noting that Chambers turns 65 in 10 days. The last signal the company sent on that subject was a little more than a year ago, and the message then could be summarized like so: “Don’t expect us to say anything more about this until we’re ready to take action, and that won’t be for two to four years.”

This article originally appeared on

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