Cisco's Layoffs: Is The Network Giant Reinventing Itself Amid Tech Industry's Massive Shift From Hardware To Software?

Cisco's layoffs of 5,500 workers were inevitable, according to the company's recent press release. By now, the news must have reached the networking giant's employees. The aftershocks of the severe downturn in the tech industry are likely to send thousands of highly skilled workers to the unemployment line.

The company's current financial standing, however, speaks otherwise; at least at first blush. Cisco just recently reported what Tieman Ray of Barron's called "better-than-expected fiscal Q4 results," which makes the upcoming Cisco's layoffs look unreasonable.

According to Cisco's press release published by Market Wired on Wednesday, the company registered "fourth quarter revenue of $12.6 billion in net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.56 per share, and a non-GAAP net income of $3.2 billion or $0.63 per share."

Such a relatively good financial standing was confirmed by Kelly Kramer, Cisco executive vice president and chief financial officer, who was quoted in the report speaking about "another solid quarter and a good fiscal year, expanding both our gross margins and operating margins," which, ironically, comes on the brink of Cisco's layoffs.

For Ray, the somewhat rosy financial report poses "a call that fielded a bunch of questions about two big unknowns: how to understand the company's 5,500 person layoff announcement, and how to understand what seems to be a bottomless outlook for the telecom equipment market."

Cisco headquarters [Photo by Marcio Market Wire AP Images]
Cisco Headquarters in San Jose, CA. [Photo by Market Wire/AP Images]According to Kramer, who, along with Cisco chief executive officer Chuck Robbins, agreed to be interviewed by Ray on the phone, while they are not pleased about the upcoming Cisco's layoffs, "we are going to be agile about taking advantage of where there's growth and where there's not."

For his part, Robbins, when asked about the potentially endless restructuring that appears to have become "a permanent way of doing business, if it is used to shift resources from moment to moment," could not help but say that Cisco "will focus on delivering on our financial model," insisting that it doesn't make sense to "get caught up on the headcount."

Robbins went on to say that he thinks "that the circumstances will always lead you to what decision you have to make at any point in time."

"To me, it's quite obvious that going through something like this, I would like to see that be the exception. But we also have to ensure that we are making the decisions to get our investments appropriately aligned with our opportunities going forward. They keys for us are that we are focusing on transitioning the business, we continue to focus on that, and accelerating that; and we are continuing to drive the pace of innovation."
Cisco's layoffs of 5,500 workers, the company's press release assured, will be significantly less than originally reported, and the reduction in the number of employees is geared towards optimizing "our cost base in lower growth areas of our portfolio and further invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud. We expect to reinvest substantially all of the cost savings from these actions back into these businesses and will continue to aggressively invest to focus on our areas of future growth."

Cisco's layoffs [Photo by Mark Lennihan/AP Images]
Electronic screens show Cisco's stock prices on the Nasdaq MarketSite on Oct. 27, 2008, in New York. [Photo by Mark Lennihan/AP Images]Cisco has been lagging behind its software-oriented competitors, particularly in the United States. The tech industry has been caught in the wave of massive shifts from hardware to software, which reportedly reached the 63,000 layoff mark as of this date for 2016. Making matters even more worrisome, Cisco's layoffs are yet to be added to the yearly total.

"The hi-tech industry is going through a serious deconstruction," said Trip Chowdhry of Global Equities Research, as quoted by Reuters.

"There is more pain to come," he added, anticipating the drastic rise of job cuts this year as more tech companies join the super cloud business by following the lead of Amazon and Microsoft. As noted by Reuters, there appears to be a consensus among analysts that IBM, Hewlett-Packard, Oracle, and Dell are all likely to follow suit.

[Photo by Marcio Jose Sanchez/AP Images]