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Cisco to cut 4,000 jobs (cnn.com)
89 points by Suraj-Sun on Aug 14, 2013 | hide | past | web | favorite | 61 comments

The explanations given in the article are slightly confusing. Cisco cites a "difficult economic climate", but then the numbers don't show Cisco shrinking or losing money; it's still growing and is quite profitable. So they aren't cutting staff because the business has gotten smaller, or because they have a gaping budget hole that needs to be plugged.

Guesses at possible explanations that seem more likely:

1. Cisco overstaffed in anticipation of larger future growth that didn't materialize, and is now correcting for that.

2. Due to productivity increases and/or automation Cisco simply doesn't need as many employees as they previously did to do the same jobs.

3. Some kind of shift between sectors of Cisco's business, with the growth areas being less labor-intensive.

Or it could be that the sales team in their biggest market is projecting flat to negative growth. Certainly part of the fallout from the US Government both over reaching on its surveillance mission and nationalistic trolling over security dangers in network equipment, is having a chilling effect on US made networking equipment abroad.

The thing about quarterly earnings reports is that usually the CEO can see stuff on the horizon (say 2 or 3 quarters away) which may be big problems. When CEOs see these things they do two things simultaneously, they prepare the markets for missed targets and they launch internal efforts to mitigate the impact. I was reading both of these in the statements made by Chambers.

[1] http://www.bloomberg.com/news/2013-06-25/cisco-china-sales-v...

Stocks trade on a multiple of earnings which is generally related to the earnings growth rate of the company. There's a little more to it than that but a benchmark is PE:EarningsGrowth% of 1:1 (20x PE to 20% earnings growth. Yes I know the units are wrong. Investors are not mathemeticians and this is from one of the famous ones.)

So, it is sufficient that Cisco not grow at rates investors expect, current quarter and next quarter, to disappoint them. If the company were shrinking or in negative growth the stock would be a lot lower.

Cisco is involved in many different markets. It's entirely possible the division(s) being cut are shrinking and/or losing money, while Cisco as a whole is growing.

Yup, exactly. Also, I believe the company is fairly lax in laying people off for poor performance. They may just be doing a little bit of cleaning house.

That would be item 3

not really.. it's entirely possible the growth areas are just as labor intensive or more so, but those positions require people with entirely different skills than those being laid off.

"1. Cisco overstaffed in anticipation of larger future growth that didn't materialize"

Another angle to this is that they are not really that overstaffed and have the ability to lay off cisco employees and outsource the work. In essence shifting cost from one area to another. Without all the drawbacks of a full time employee. All at once so everyone can move forward.

For example the person in job "x" being paid $x dollars is the not same as an outsourcing job "x" and paying the outsourcing company "$x" dollars.

One cost is easier to get rid of (vs. laying off employees) and would be shown in financial statements in a different and possibly more advantageous place.

I work for Cisco (for a little while, at least), and my observation is that Cisco primarily obtains staff by acquiring other companies, not through direct hires. It then spends some time digesting each new acquisition, and finally is left with some quantity of people who, even if they were performing a useful function in the original company, now have no real job to do.

I don't know which BUs are affected by this but I'd be unsurprised to find it's all from acquisitions that are between 2 and 5 years old.

My guess turned out to be completely wrong, it's something else entirely

Part of it is their acquisition cycle, whihc has picked up again in 2013. Buy out, consolidate, then look for more. Anyways i've met tech staff who were laid off there and had new jobs with a week.


Alternative suggestion: Its scarily common to see reporting chains that look like this:

Dev -> Dev Group Lead -> Dev Director -> Engineering Director -> Single Product VP -> Multi Product VP -> Product Range SVP -> Market Sector SVP -> C-Level Exec.

You can start to see where there is fat to be trimmed... Or in sales:

Account Manager -> Area Sales Mgr. -> Regional Sales Mgr -> Regional Sales Director -> VP Regional Sales -> SVP Market Sector -> SVP EMEAR -> SVP World -> C-level Exec.

It boggles the mind.

I would say neither of them, they overstaffed with the wrong wrong people.

I had some relationships with Cisco as a vendor and talked informally to business people there. I can share my microscopic experience. I was surprised by the level of bureaucracy: wasting time in meetings (obviously via WebEx), project managers that only tick items, people who are in charge and don't know anything about the subject (and are not interested in learning).

Sometimes large companies do a layoff program to 'trim the fat'. This is about 5% of the total workforce, which is a bit aggressive for that.

Reduced headcount forces automation which might have been politically resisted for years, reduces complexity (giving customers a more consistent service), and makes managers bite the bullet and get rid of 'employees that are not bad.. but definitely not good either'.

Having ridden them out... twice now, at 2 big companies, the people that go are usually the people you'd predict, but the atmosphere it creates is horrible and really effects the creativity of the company for a couple years.

Re: atmosphere, I recall reading studies that a certain proportion of people who are both exceptionally good and widely recognized by management as such, and therefore in no real risk of being chosen in a layoff round, nonetheless get very jittery during layoffs, fearing that they'll be next. Iirc two contributors are that some skilled employees massively underrate their own performance, and others just don't trust the layoff-selection process, treating it as an unpredictable and possibly random adversary.

There's also not much room for error, because if people who are considered good by peers get laid off, trust in management's judgment takes a nose-dive. I remember my dad and his coworkers kind of holding one layoff against management for years, when a highly regarded member of the group was laid off. They were so incredulous people would use it as a running joke, "yeah, but remember these are the geniuses who fired [guy]".

The old "lets get rid of 5% by next n months" creates a piss poor environment for everyone. I encountered this at one of the first companies I worked for ... I was (tech-wise) young hot stuff. Older people I liked were freaked out. This got me so negative that I left myself after the layoffs. This was around the Y2K tech implosion.

When I told my wife about the Cisco layoffs she remarked .. 'oh ... it is like 2000 again'. This got me thinking. Things are surely different today and I'd say a lot better for capable people. For one, entrepreneurship is much more accessible today due to the lower start up capital needed. Another similarity is that around the Y2K meltdown, anyone who knew HTML was calling themselves a web programmer. I see a bit of that these days. But not to the same extent. And I don't see large corporations hiring such people to the same extent that web startups hired. As another commenter mentioned ... these people may not have had the right skills. My guess is that the older workers will bear the brunt of the axe. This reinforces my belief that knowledge capital is very ephemeral in tech.

A final note: I feel very bad for the people losing their jobs. I think rationalizing it based on economics or that the company has fiduciary responsibilities to its shareholders is foobar. I truly believe the HN community contains the next set of leaders in the tech industry. It makes me sad how insensitive comments are to Cisco employees. Sure, many will find jobs soon. Many will also have sleepless nights. The tech industry is renowned for meritocracy and our professionals are perhaps the least organized of all. We need to be compassionate.

> This reinforces my belief that knowledge capital is very ephemeral in tech.

It depends on what you invest in. Some areas are incredible long lived, like compilers (esp. parsing!), Unix scripting, C, Fortran. Even Cobol.

> Reduced headcount forces automation which might have been politically resisted for years

More like, "we can't afford to spend time on automation now that we lost a team member!"

> I was surprised by the level of bureaucracy: wasting time in meetings (obviously via WebEx), project managers that only tick items, people who are in charge and don't know anything about the subject (and are not interested in learning).

As a former CCNA/CCNP student I can attest that if Cisco bureaucracy is anything like their online courses it must indeed be a huge timesink and money hole.

Cisco has been laying off a few percent of their workforce every 6 to 12 months for years. This fits into the strategy they've embarked on since 2007 to move much of the business to india. When you hire people in india you've got to fire them somewhere else.

More on their indian strategy: http://forbesindia.com/printcontent/32858

4. Cover executive compensation increases.

In all seriousness, CSCO should regain today's 10% after hours loss within a month after investors realize cutting 10% of their staff will greatly reduce operating expenditure.

Doesn't Cisco routinely rank people and get rid of the bottom 10%? There are so many layoffs in Cisco over the years. It's no big news.

That's Oracle you are thinking of.

The CEO needs another raise.

Large companies (I've worked for two, in the Valley) have huge amounts of bureaucracy. Until you've worked for one, it's unbelievable how inefficient and wasteful they can be.

Maybe regular layoffs are a way to "force" some efficiency into the system, to cut out some fat, even if you end up losing some good people with the bad.

The promise of regular layoffs is also an excellent way to keep your employees toeing the line. Not everyone is a 25-year-old web developer with three competing job offers at all times.

My (albeit limited) experience is that the company will become slightly more efficient short-term, but long term the bureaucracy closes ranks and goes into self-preservation mode which makes things even less efficient.

Departments will start scheming ways to make themselves an artificial dependency on daily operations "You can't fire the [team], they handle approvals for [newly invented step in process]!" Pretty soon you have entire floors full of people who's entire full time job is essentially keeping their full time job.

I'm inclined to think that once you're out of "startup mode" your company's efficiency will have more to do with its culture than its headcount.

In my experience the manager will not fire their manager friends; they will tend to settle political scores. Guess who is to get the boot? those who cause 'trouble' by speaking up, now all to often these are the guys/girls who care about their work and who are good at it.

My advise: if you interview a person who has been fired from big corp. then don't form any preconceptions against that person based on that fact alone.

Another guess. . .which I hate on principle. . .if their quarterly profits, even if great, have been below analysts' expectations, Wall Street will urge them to cut costs. . .and they will.

Analyst expectations is the biggest nonsense. Corps the size of Cisco carefully manage analyst expectations. They have dedicated analyst calls, "we think you're a little off on your predictions, maybe 5% too low"... the aim is to exceed analyst expectations by the tiniest margin.

The stock dived 10% on the announcement. If this was Wall Street "urging" them, the stock would have risen.

When the stock dives, it's because the market thinks the company management knows something the market doesn't.

Isn't it too early to announce layoffs in 2014? Employees would just start applying for jobs preemptively and the best will actually get offers by then. You don't want your best people to lose faith for such a long period of time.

They don't mention what kind of employees these are. Could be factory workers or salespeople, not engineers who can find a job quickly.

Cisco's fiscal year starts towards the end of July. So we're already in FY14.

I still cannot believe they bought Flip and shut it down. I would imagine quite a lot of these jobs are from other acquisitions.

Amazing pile of cash. Add this to Apple and MSFT and that's a huge horde. I suspect if/when globally the economy shows sustained health there will be a massive M&A surge as these guys gobble up small and medium players.

"If/when"? Cisco is already acquiring companies at the rate of about one every month or two [1]. Having been on the receiving end of a rather large one, the striking thing was how routine and well-oiled that process is.

[1] http://www.cisco.com/web/about/doing_business/corporate_deve...

I wonder why we still publish articles about a basic business practice, trimming the fat.

And especially(this one thankfully not included) the number of articles which talk about it like it's a bad thing.

Could someone explain to me like I'm five why companies need to cut jobs when they are making pretty good profits, and have tons of cash in the bank?

Because if you can buy something for $9, why pay $10, even if you have $500 in the bank?

Same reason that someone who's "rich" and "makes good money" would still negotiate the price of their new BMW/Mercedes or their house.

From here down isn't especially for five year olds, but I think it's still graspable.

Running a company properly (by many investors' definition) is an optimization problem, not simply a constraint satisfying problem. If you can have 4000 fewer employees and be more profitable in that state than in yesterday's state, investors will expect you to do that, even if you're currently profitable. (The costs [monetary and morale] of doing layoffs inject a certain amount of stabilizing hysteresis into the system.)

I think this is incorrect. For big tech companies any money in the bank are lost money. The rule is "keep your money low". The best thing a company can do is to constantly create new projects with higher risk and assign their employees there. You only have to really cut employees when you run out of ideas or the risks are too high for some reason.

Money in the bank isn't working and due to inflation is slowly just disappearing - so that is clearly undesirable.

But it doesn't follow that it's a good idea to just spend them on anything, you need to spend them on something with a chance of giving you a return. If you have a division that isn't giving you a return, and you don't see a way of changing that, keeping it around is just a way of making your money disappear faster - which is also clearly undesirable.

That seems exactly right to me. Cisco seems weirdly pessimistic and conservative, like grandpa stockpiling money and guns 'cause he's sure the gummint is coming for him.

How about returning some money to the investors?

"would still negotiate the price of their new BMW/Mercedes or their house"

Would add to that statement that even if you have the money to some people negotiation is fun (such as myself). It's a game same as people play other games where money isn't even involved.

Add: What I'm saying doesn't apply to Cisco or companies so much as the statement you made as far as "rich" people or people where it's not the money that matters.

I don't know if you work at a huge company. Maybe you do. I've worked at a couple.

Like government, large companies provide a sheltered environment where things happen that couldn't survive out in the real world. Sometimes that's high risk research - Google X, the Manhattan Project. Usually it's people who don't know excel supports formulas, and departments that could be replaced by a web form.

These are protected by many layers of politics, and natural human compassion by managers at all levels who don't like firing people.

Every layoff I've seen, the subtext has been 'lop off the deadwood'. They would make up a reason, but everyone would know.

Because companies don't employ people to be nice or because they can afford to, they employ people because the money they make doing so is more than the amount it costs to employ those people. Even a rich, successful company may fire people (even a lot of people) if that saves them more than they lose in productivity. Since not all employees are create equal, this is likely very easy if your company hasn't been very good about maximizing productivity of every employee.

One reason might be to get ahead of something they foresee hurting profits in the next quarter or next year. Not to wait until it shows up in the bottom line.

"like I'm five"

Ok here it is for a 5 year old.

You have a 10 lemonade stands staffed by 10 people. You've had a good year and have made money. But next year you will loose 3 of the stands and so you are going to get rid of three people because they won't be needed even though you made money fine this year.

This isn't very good, because you don't describe the reason that one would lose the three stands.

It could be because I am changing my business.

Let's say I am a Big Tech Company. I make Gadgets and Widgets. If I decide I don't want to make Gadgets any more and make only Widgets, then I don't need the people who make Gadgets. SOME of the people who made Gadgets could be retrained/repurposed to make Widgets, but some can't (or don't want to). Those are the people whose jobs I will cut. And of course, I will use some of my "tons of cash in the bank" to give them severance packages to compensate while they search for jobs in other companies who make Gadgets.

Want, not need.

Employees cost money. Companies want to cut costs.

They just don't have enough work for everybody. They could create new projects and assign people there, however it's very difficult to come up with new ideas that will make money. And of course they can employ people who don't have anything to do.

Anyone know what business units these cuts are coming from - core routers & switches, carrier, security, etc?

I honestly dont understand this sometimes. Such MNCs fire a lot of people and pays them severage and then after few months hires new people for similar but slightly different jobs.

With lower salaries and fewer benefits though.

I frequently see Cisco recruiters so its hard to understand exactly whats going on.

Possibly healthcare cost related?

No evidence of that. Several factors have been mentioned, but no mention of any concern about healthcare costs.

switchers? Seriously, cnn just lost what little respect I had for them..

Are the firing concentrated in USA?

When printing machine was introduced in Ottoman Empire thousants people lost their jobes. Disaster for the economy?

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