“To fully realize Cisco's potential we know we must make some very important operational changes and clearly define our network- centric strategy. We are moving quickly to focus our product portfolio, simplifying our operations (including significant cost reductions), and allocate our capital in the most productive way possible. An integral component of the plan is our goal to take out $1 billion in costs from our fiscal 2012 expense run rate, and part of that is obviously tied to the size of our workforce.”
The statement continued, “Today we announced further progress on our action plan.
First, we announced the details of our global workforce reductions. We plan to reduce our global workforce by approximately 6,500 employees across all functions, which includes approximately 2,100 employees who elected to participate in a voluntary early retirement program.
This also includes a reduction of executive-level staff (vice president and above) by approximately 15 percent. The reduction is approximately 9 percent of Cisco's regular full-time workforce. While these decisions do not come easily, we believe we have right-sized the organization and realigned our workforce to support our priority areas, while retaining the capabilities and talent to effectively support our long-term strategy. Our impacted employees will be treated with respect and receive appropriate severance benefits.
Second, we have reached an agreement with Foxconn to take ownership of our 5,000-person manufacturing facility in Juarez, Mexico. This sale is an important step in simplifying our operations and brings our set top box manufacturing in line with Cisco's manufacturing strategy of partnering with world-class EMS (electronic manufacturing service) organizations. This is a clear opportunity to effectively manage our supply chain. While this action is expected to create improvements to our long term cost structure, our strategic intent for this action is to simplify our business operations and does not change our approach to the service provider market. Our service provider customers continue to require an integrated solution and although Cisco will no longer manufacture the boxes, we will continue to invest in existing and new video platforms, as well as advancing our next-generation platform, Videoscape, and set-top boxes. We will continue to drive innovation that helps our customers navigate the new opportunities in video, mobility, networks and cloud computing.”
Commenting on these actions, Askar Sheibani, CEO of UK-based IT and telecoms repair service Comtek, said. “The redundancies will do little to solve the problems facing the stricken market giant and that further decline is inevitable.
The cutbacks will buy time for Cisco, but it faces a fundamental problem in that the market for its flagship switching products has matured, and no plausible steps have been taken to capitalise on other opportunities in the telecoms and data networking markets. We’ve seen this all before with the demise of Nortel – another industry giant that was slow to react to changes in the market – and it seems inevitable that Cisco will soon follow suit.
“In the meantime, the redundancies will likely have a negative effect on the support Cisco provides for its legacy products, leaving customers with increasingly dwindling resources to draw on in the event of equipment malfunction. Considering that multiple global infrastructures are based on Cisco equipment, many companies may start looking to service providers that can help them maintain and repair Cisco kit. At Comtek, we expect to receive an increasing amount of enquiries from nervous Cisco customers and are already gearing up to support them as Cisco continues to decline.”