Cisco to take $700 million in restructuring charges for layoffs

Facing pressure to retire, CEO Chambers says savings will go toward profitable sectors like cloud and security

Reuters

(Reuters) - Network equipment maker Cisco Systems Inc said on Thursday its plan to slash 6,000 jobs will result in restructuring charges of $700 million in cash in the year ending July 2015.

The latest round of layoffs, announced on Wednesday, is at least the fourth workforce reduction in about as many years for a company once synonymous with the Internet boom and could spark a shakeup in management, analysts said.

Shares in Cisco, still the world's largest networking equipment maker, were down 2.7 percent at $24.52 on the Nasdaq.

Cisco has failed to sustain growth in its high-end switches and routers business and is grappling with competition from so-called software-defined networks (SDN) which offer software that can run on cheap hardware.

The company will recognize $250 million to $350 million of the charges in the first quarter, it said in a regulatory filing.

John Chambers, Cisco's veteran chief executive, blamed the cuts on global uncertainty and said he will use the savings to reinvest in profitable sectors like cloud computing and security.

While the company has cut over 17,000 in the past four years, acquisitions have helped its headcount grow to around 74,000 from 71,000 in 2011, according to Cisco's regulatory filings.

"He is right-sizing Cisco and trying to get some strategic changes put in place. In the interim he has got to maintain his margins," said Ken Dulaney, analyst at Gartner.

The cuts could put pressure on 64-year-old Chambers to retire. The CEO has led the company for nearly 20 years and in 2012 said he would look to retire in two to four years.

But Chambers is unlikely to leave before he is ready. According to Dulaney, Cisco's board is loyal to Chambers, who joined the company as senior vice president in 1991 and helped it grow into a $128 billion operation, one of the most valuable tech companies in the world.

Still the announcement, which made Cisco the biggest decliner on the S&P 500 on Thursday, could cause a shake up at the company.

"A lot of his software investments have not panned out. He has got to get back to his core business and do greater things. That will happen if he gets new management under him," said Dulaney.

Cisco is also battling sluggish sales and increased competition in emerging markets. The company's rivals include Juniper Networks Inc and China's Huawei Technologies Co Ltd [HWT.UL].

Cisco said on Wednesday that sales fell 23 percent in China and 13 percent in Brazil in the fourth quarter ended July 26.

The company also reported flat profit for the fourth quarter and forecast tepid first-quarter profit and revenue.

(Editing by Simon Jennings and Andrew Hay)

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