Cisco Systems, Inc. (CSCO) CEO Says Job Cuts Necessary For Growth

Cisco Systems, Inc. (CSCO) CEO Says Job Cuts Necessary For Growth
By Cisco [Public domain], <a href="">via Wikimedia Commons</a>

John Chambers, CEO of Cisco Systems, Inc. (NASDAQ:CSCO) said that the company’s plan to cut 4,000 jobs or 5% of its work force is necessary and part of its strategy to bolster growth.

Cisco Systems, Inc. (CSCO) CEO Says Job Cuts Necessary For Growth

In an interview with CNBC, Chambers explained, “The market is moving fast, and it is realigning its resources to where the company has growth opportunities.” According to Chambers, the resource reallocation of Cisco Systems, Inc. (NASDAQ:CSCO) should be executed over the next two quarters because of the fast-moving market. He noted that his mistakes in the past occurred when he moved too slow or faster without process.

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Cisco downsizing related to resource reallocation

Chambers said Cisco Systems, Inc. (NASDAQ:CSCO) plans to reallocate its resources in new technologies such as cloud computing, mobility and internet products. He emphasized that the company became the number one player in cloud computing last quarter, and it has the best architecture in the industry in terms of mobility.

“You’ve got to move resources into those areas. By definition, then you have to move them out of your traditional business. We literally are investing for the future. You have to balance that from where the resources are going to come from,” said Chambers.

Cisco is “still an American company”, not outsourcing

In addition, Chambers said as the leader of Cisco Systems, Inc. (NASDAQ:CSCO) he is willing make tough decisions that are right for employees, shareholders, and consumers over the long-term. Furthermore, he said the company will explain the details of the layoffs to its employees during a conference call on Thursday. Chambers emphasized that Cisco is “still an American company,” and it is not moving jobs overseas.

During the interview, Chambers also said that Cisco Systems, Inc. (NASDAQ:CSCO) delivered earnings the meet the guidance it provided to Wall Street. For its fourth quarter earnings results, the company reported $2.27 billion net income or $0.42 earnings per share. In the same period last year, Cisco posted $192 billion net income of $0.36 earnings per share.

Its revenue was $12.42 billion, an increase of 6.2% from $11.69 billion a year ago. Its gross margin was 59.2% lower that its 60.6% gross margin last year.

Analysts at BMO Capital Markets and Wunderlich Securities remained positive on Cisco Systems, Inc. (NASDAQ:CSCO) despite the job cuts. However, they believe that the cautious tone of the management of the company will scare investors. BMO maintained its Outperform rating and Wunderlich reiterated its Buy rating for shares of Cisco.

Shares of Cisco Systems, Inc. (NASDAQ:CSCO) declined by more than 6% to $24.66 per share on Thursday around 1:26 in the afternoon in New York.

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