Cisco Systems plans to cut 5,500 jobs

Savings to go into businesses expected to boost sales, such as cloud computing

SAN FRANCISCO • Cisco Systems, the biggest maker of equipment that runs the Internet, plans to cut about 7 per cent of its workforce, in an attempt to recast itself as a provider of software-based systems and services.

The company will eliminate 5,500 positions from its workforce of more than 73,700, it said in a statement on Wednesday. Savings from the job reductions will be invested in newer businesses that Cisco expects to fuel sales growth - such as cloud computing and connected devices.

The firm said it will take charges totalling about US$700 million (S$940 million) associated with the restructuring.

"We need to make some pretty immediate shifts in our portfolio," Cisco chief executive Chuck Robbins said in an interview.

"We have rapidly shifting customer expectations. The winners in the future will be the ones that understand those dynamics."

Mr Robbins, who took over in July last year, has been working to rekindle growth by shifting Cisco towards software-based networking, security and management products, which customers increasingly prefer because they are less expensive and more versatile.

Cutting Cisco's workforce may give Mr Robbins the resources to speed up the firm's transition, potentially helping it to take advantage of stronger demand in markets such as security, which grew 16 per cent in the fourth quarter, and collaboration, where sales rose 6 per cent.

"We are looking at the areas where we believe growth will come faster," Mr Robbins said in a conference call. "It's not that we're ignoring one in favour of another. We just want to make sure our investments are commensurate with the growth opportunity."

Shares of the company declined about 1 per cent in extended trading following the announcement. They had earlier fallen 1.3 per cent to US$30.72, leaving them up 13 per cent this year.

"Cisco is plodding along," said Edward Jones analyst David Heger. "It is not overall declining. That's a signal that it is managing the transition fairly well."

Underlining Cisco's struggles to revitalise growth, the company on Wednesday reported fourth-quarter sales that declined 2 per cent from a year earlier in a "challenging macro environment".

The headcount reduction was much less than some analysts had speculated and in line with a more typical annual cut of 5 per cent, Raymond James analyst Simon Leopold said in a note.

Any more and investors would have been concerned that Cisco was signalling "a more challenging sales environment than we had expected".

The company last announced a large round of firings in August 2014, when it eliminated 6,000 positions. Its workforce is down from the 75,000 it employed in 2013.

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A version of this article appeared in the print edition of The Straits Times on August 19, 2016, with the headline 'Cisco Systems plans to cut 5,500 jobs'. Print Edition | Subscribe