Will Big Layoffs Help Cisco's Stock?

Networking giant Cisco (CSCO) is not only one of the most important tech companies in the U.S. with a market cap of $94 billion, it is also one of the 30 stocks that makes up the Dow Jones Industrial Average. It has earned that right because of stellar results throughout the years. But for the first time since John Chambers took the CEO job in 1995, the tech firm is in real trouble. Part of its way out will result in the layoffs of 4,000 to 5,000 people which is part of a plan to cut $1 billion in costs per year.

Will it work? The expense plan is critical to Cisco's short-term future. It is a finger in the dam meant to help the firm's P&L while it restructures and sheds some of its businesses, many of which it has bought over the last decade.

The cost cuts may not be enough to fool Wall Street. A number of analysts downgraded Cisco almost immediately after its earnings release. The company made $1.8 billion in net income on $10.9 billion in revenue in its fiscal third quarter. Net income fell 17% as revenue ticked 4% higher. On an annualized basis, the consensus is that Cisco will make about $5 billion this year.

Even if Chambers takes $1 billion in expenses out of Cisco, investors will immediately want to know what the next chapter in his turnaround strategy will be. Not much was said about it on the company's earnings call. The cost cuts may help the bottom line, but probably not enough for earnings to move higher than they were last year. And if more cuts are needed in the future, it may risk the ability of Cisco to compete in some of its core markets.

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Dereck

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Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section: http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

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May 28 2011 at 11:47 PM Report abuse rate up rate down Reply
someoneole

I think that a lot of companies have become profitable by cutting expenses, rather than by expanding business.

May 16 2011 at 3:07 PM Report abuse rate up rate down Reply
josephinedeym

One of the problems is China with its tentacles in every crevice of American life (look at the spam on this comment page - that's China). Another problem is they are firing all of the people who actually do the work while the fat-bottomed managers and executives are spared. How is it that they believe anything is going to get done with a bunch of fat, hypothyroid egomaniacs running the show with no workers is beyond me. Oh, yes, jobs are being created all right, but they're McJobs that are part-time, temporary or pay minimum wage. That's the new America. Want fries with that?

May 15 2011 at 11:19 AM Report abuse +1 rate up rate down Reply
David

Funny thing....I justed watched on the nightly news how Cisco, GE and many other American businesses moved their operations overseas so as not to have to pay income tax on their earnings here. Ciscos' CEO stated at the time that they had over $40 billion sitting in overseas bank accts. and would bring it back home if our Govt. would give them a tax break. Wouldn't it be nice if all of us meager wage earners could just hide our money elsewhere and not have to support the very backbone programs of this once great nation? Corporations that control perhaps 90% of the wealth in this country pay hardly any taxes at all leaving that burden squarely on the backs of the middle class. They blame it on their stockholders greed...their need to see a larger return on their investments. Perhaps the tide will someday change and they, like all the other little pee-ons ,will have no investments to worry about. Just perhaps,their meager, decreased Social Security checks. Alltold he claimed that there was in excess of something like $1.6 Trillion American dollars sitting in overseas bank accts. just to avoid paying taxes here. Unreal.

May 15 2011 at 11:15 AM Report abuse -1 rate up rate down Reply
1 reply to David's comment
Rose

I accidentally hit a thumbs down, but I agree with everything you've said.

May 15 2011 at 11:31 AM Report abuse rate up rate down Reply
Doug

That is another sad story of downsizing. It is still happening and the economy is not getting better like the prognosticators say it is.

May 15 2011 at 8:09 AM Report abuse rate up rate down Reply
netexas121

I started reading this article and had a flash back of Nortel Networks. Hey there isn't any ex-Nortel VP's or Directors in Cisco upper management is there?

May 14 2011 at 11:11 PM Report abuse rate up rate down Reply
jmboks

A company makes 5 billion a year and a company that makes nothing (Wall Street) says that isn't enough to satisfy our greed so you gotta go. That's the free market capitalism for you.

May 14 2011 at 10:50 PM Report abuse rate up rate down Reply
davehyannis

HOW MANY TOP ECHALONS WILL GO OR IS IT THE PEOPLE THAT ACTUALLY MADE THE PRODUCTS FOR THOSE BILLIONS? AND HOW MANY MORE MILLIONS WILL CHAMBERS REEP? IMAGIN ONE MAN WITH MILLIONS OR 5000 BUYING GROCERIES EACH WEEK BUYING CARS BUYING HOMES PAYING TAXES AND JUST LIVING. IS A CORP JET WORTH THAT?

May 14 2011 at 8:48 PM Report abuse rate up rate down Reply
pamacdona

Chamber's has to go, period,

May 14 2011 at 2:49 PM Report abuse +1 rate up rate down Reply
j319s

Maybe they should layoff Chambers. Lied to the world about corporate taxes on 60 Minutes. Some how he forgot VAT which is not used in the US. A real stand up guy.

May 14 2011 at 9:49 AM Report abuse rate up rate down Reply