4,000 heads will roll at Cisco, as the networking giant prepares for another lean year in an IT market still recovering from the aftershocks of the global recession. The company's chief executive, John Chambers, announced the cuts alongside Cisco's financial results for Q4 2013 on a conference call on Wednesday. Cisco shares …
Put another way, Executives at Cisco want to continue making their fat salaries. The only way to insure that happens is to swing the axe to 4,000 staffers to insure that they take the financial hit, rather than the execs. Welcome to Gordon Gecko's philosophy. GREED IS GOOD!!
Exactly what I was about to say! It is 'important' and 'necessary' to fire 4,000 workers...while upper management doesn't get touched. Not even their salaries or bonuses.
Why has America become a second-rate world economic power? Here is your answer.
This must be preemptive as OpenStack, Nicira at VMware, and the other SDN offerings are threatening to commoditize their networking market in the US/Europe. In Asia, where they are starting from scratch, not many will decide to pay the Cisco premium when they can get what they need from Huawei at a fraction of the cost. Despite Cisco being amongst the hottest hardware companies on the market, it is all based on a relatively narrow product set.
They should be pouring money into their alternative, and superior for reasons x, y and z version of open SDN. Cisco has nothing like that on the table today. If they don't build that story now, it will be too late when open SDN, from Nicira or whoever it ends up being, gains momentum. It seems as though they are anticipating the loss before the battle has happened and are just going to start the process of cutting.
Rounding the curve
Cisco is approaching a curve with the comoditization of hardware through lower cost competitors, SDN, OpenCompute, etc. I think their high end stuff can still do well, but that can't make up for weakness in other areas. And the data center space can only support them for so long. They're are starting to dabble in "X"aaS and orchestration and other software, but it remains to be seen if they can execute on that vision, or if they'll default to their hardware-centric ways. So, they can round the curve like IBM, they can scrape along the curve like an HP, Fujitsu, or Oracle (who aren't doing great, but are getting by and will emerge battered), or they can crash into the curve. I hope its one of the first two as I think they still have a lot to offer.
They might have to drop their product pricing to 5 times what it is worth.
the only reason anyone uses Cisco
is that they have the market tied up and locked in. No company wants to pay to retrain their staff if they already know IOS (despite it being pretty much standardised, the commands sets are all different).
That and their gear is "reassuringly" expensive compared to the competitor's equivalent by a massive margin. How Juniper is not shifting more switches than Cisco at the prices they're going for, I'll never know!
Re: the only reason anyone uses Cisco
A switch is a switch, the clever stuff is in software.
One axe for 4,000? The guy must be a regular at triathalons.
Questions I have from an Investor's Viewpoint.
So what IS the Salary structure of Management that you want to cut to make up for 4k employees?
Certainly it is bloated as virtually all US companies are, but what are the numbers that they have to make up? Hopefully they aren't pulling a "Circuit City" and unloading their highest paid (read that "most successful" salespeople).
As I understand it, Cisco is so proprietary that once you switch to Cisco, it becomes horribly expensive to switch away as you have to replace most of your equipment. If that is still true, they could sell the gear at a lower margin than the cheap systems, knowing that a company is locked in forever.
I can believe that they could unload jobs that are being automated into obsolescence such as the jobs they dropped on Foxconn, but I guess that if they are selling less Routers, they probably need less installers. My understanding is that for the Premium Price, you get more reliable systems than you get from "Low Bidder" distributors.
I also have to wonder how many of those 4k jobs are going to be replaced with "Temps" that Cisco doesn't have to give benefits. That is certainly a huge trend in recent years.