SAN JOSE -- In what has become almost an annual ritual, computer networking and communications colossus Cisco Systems on Wednesday said it is laying off thousands of employees as it struggles with sluggish sales and a range of fierce competitors.
The company announced 6,000 job cuts on a conference call following its quarterly earnings report, or roughly 8 percent of its workforce, and has trimmed nearly 20,000 jobs over the past five years. Although Chief Financial Officer Frank Calderoni said the company expects to reinvest much of the savings from the cuts announced Wednesday into key growth areas, Cisco officials would not say how many new people would be hired in those areas or where they would be employed. They also did not say where the cuts would occur.
Noting that the San Jose corporation needs to make changes to keep pace with rapidly changing technology, Baird Equity Research analyst Jayson Noland said, "It's probably frustrating to be an employee there when they are going to have major restructuring efforts like this every year or two." But he added, "if your skills are stale as an engineer or as a sales and marketing guy, you're running the risk of being replaced."
Cisco is Silicon Valley's fifth-biggest corporation by revenue, but its sales have been blunted by the sluggish global economy. It also faces increasing competition -- from recent startups to more established corporations such as Juniper Networks of Sunnyvale and Brocade Communications Systems of San Jose.
"We'll do limited restructuring across several areas of our business," CEO John Chambers told analysts during the conference call to discuss the company's latest quarterly financial results. Calling employee reductions "the most difficult decision we make," Chambers added that "we are making these tough choices" so the company can transform itself and grow more quickly.
Cisco has slightly more than 15,500 employees in the Bay Area, in cities including San Jose, Milpitas, San Francisco, Santa Clara and Pleasanton, according to company spokesman Nigel Glennie.
Despite cutting nearly 12,000 jobs between 2011 and the end of 2013, Cisco's global workforce actually increased over that period from 71,825 to 75,049 and currently stands at 74,042, the company said.
Some analysts attributed that largely to Cisco's ravenous appetite for acquiring other companies and their employees as a way of jump-starting its push into new markets and technologies. But lately, Cisco's business has been less than spectacular. Along with the latest job cuts, it also reported a slight drop in year-over-year sales and profit for its fiscal fourth quarter, though its earnings beat Wall Street's expectations.
Cisco said it made a $2.24 billion profit on sales of $12.36 billion, compared with a $2.27 billion profit and sales of $12.4 billion for the same period a year ago. Its quarterly earnings worked out to 43 cents a share. Analysts surveyed by Thomson Reuters generally had expected 41 cents a share on sales of $12.13 billion.
"I am pleased with our solid performance," Chambers said during the conference call. "I think we're doing very well in a tough market." However, he cautioned that the company's sales next quarter would most likely grow 1 percent or less.
Investors seemed unimpressed. Before the company's earnings and layoffs were announced, its shares rose 5 cents to close at $25.20. But in after-hours trading following the disclosures, its stock price fell more than 1 percent.
But others remain upbeat about Cisco, including Raymond James analysts.
"When we consider Cisco's market position, balance sheet, favorable secular trends, culture of seizing opportunity in tough markets and valuation, we see the opportunity as a promising longer-term investment," they concluded in a note this week.
Cisco -- which sells switches, routers, servers, security devices, videoconference gear and other networking and communications equipment to businesses and government agencies -- has seen its sales and profit slump in recent months. In addition, some investors have been disappointed with its stock performance, although Cisco's shares this year have risen along with the overall market -- its stock is up 12.3 percent in 2014.
Chambers is attempting to bolster his company's sales by providing consulting services, software, cybersecurity protections and products for the fast-proliferating array of household, industrial, medical and other gadgets that are being connected to the Internet.
Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.