- Posted July 20, 2011 by
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Cisco Restructures: Ouch! The Pain of it All
It is never appealing for companies to end up in the position Cisco (NASDAQ: CSCO), finds itself at the present moment. That is, having to reorganize and downsize to mitigate loses of market share to more price nimble competitors like HP (NYSE: HP), Alcatel-Lucent (NYSE: ALU), and Juniper (NYSE: JNPR). See (Is Cisco Losing Market Share to HP?) As a result Cisco will reduce headcount by 6,500, or 9%, down from the previously reported 11,500, thought to be a result of shedding its Set-Top-Box plant, (produced for cable market), in Mexico to Foxconn Technology Group (TSE: 2354.TW). Those 5,000 jobs will not be eliminated but continue with the purchaser. Of those jobs actually being cut, 2,100 will be from attrition while the rest will receive pink-slips, severance, and job search help.
Somehow Cisco began to believe in its own hype, that being the largest producer of broadband network switching and routing equipment was an insulator to competition. In losing its way, the company began dabbling in peripheral markets and failed to recognize the bloating and evident lethargy that was occurring in its core business. Those realizations have set in motion a painful, but needed, recalibration of “all things important in making shareholders happy”. As such, Cisco will work to trim expenses by $1billion per year, much needed to meet immediate financial expectations and assure Wall Street of a more protracted path.
Analysts have differing views on recovery for Cisco, one believing the company needs a more long-term plan to address its current portfolio, creating new products, and strengthening its partner relationships. Another say Cisco must address long-term financial targets, providing succinct plans on how it’s going to repair its existing business. See (Cisco share up on move to cut jobs)
The pain for Cisco is real and senior management must work to reassure existing employees that it has turned the corner in restructuring. It must deliver a new mantra to motivate and incent employees to work toward a more nimble existence, one that allows innovation, efficiencies, and collaboration. Moral at this juncture is of utmost importance, both in keeping existing headcount onboard, while getting everyone to buy-in as the company redevelops a more practical direction. See (Did Cisco Cut Deep Enough?)
Finally, Cisco has the resources to unleash a wealth of knowledge and talent, that is, if it does not eliminate too many of its mentors and teachers, to innovate and come back stronger than ever to compete in an increasingly competitive market place challenging its core business. However, sales of new products within new markets including datacenter-virtualization, video-virtualization and mobility seem to be strong indicating that as market dynamics change, Cisco is filling that customer demand. The company stock closed at $15.58, up 0.907% for the day.