WSJ(3/12): Cisco To Trim Up To 17% Of Work Force By July
Dow Jones News Service ~ March 11, 2001 ~ 9:50 pm EST
By Scott Thurm
Staff Reporter of The Wall Street Journal
Cisco Systems Inc. Chief Executive John Chambers talks frequently about the pain of laying off workers at other companies earlier in his career, and how he hoped never to have to do it again.
So it was a particularly ominous sign when Cisco Friday said it would eliminate as much as 17% of its work force by July. The San Jose, Calif., maker of Internet-switching equipment said it would lay off 3,000 to 5,000 of its 44, 000 employees, and as many as 3,000 of its 4,000 temporary and contract workers.
"For Cisco to do layoffs, the business must be much worse than we expected," said Chris Stix of Morgan Stanley Dean Witter.
Cisco didn't revise the financial targets it gave analysts last month, when it projected revenue of $6.4 billion to $6.75 billion for the fiscal third quarter, ending in April. But Mr. Stix said he now expects quarterly revenue to drop to less than $6 billion, and expects Cisco's earnings to fall far short of the 14 cents a share projected by analysts surveyed by First Call/Thomson Financial.
Nikos Theodosopoulos, of UBS Warburg, who reduced earnings estimates for Cisco last week, said the layoff announcement would prompt another "vicious cut" in his estimate.
In an interview, Mr. Chambers said the job reductions were needed because Cisco's business is deteriorating much more quickly than he believed even a month ago. In particular, he said the U.S. economic slowdown and reduced corporate spending on high-tech gear are likely to continue into the second half of the year, and that the weakness "is spreading to Asia and to Europe."
The cuts are the first widespread layoffs in Cisco's 17-year history, which has been marked by rapid growth. Indeed, Cisco is fighting citizen activists in San Jose over plans for a new corporate campus intended to accommodate as many as 20,000 additional workers someday.
A spokesman said Cisco has occasionally eliminated a handful of jobs following a merger. In addition, Cisco typically asks roughly 5% of its employees to leave following annual performance reviews. But Mr. Chambers acknowledged that the new cuts, which could affect more than 11% of Cisco's employees, go much further.
Cisco said it would take one-time charges totaling $300 million to $400 million in the third and fourth quarters to reflect severance costs. In addition, Mr. Chambers said Cisco would allow some employees to take one-year leaves of absence, and receive one-third of their salaries, to work at specified nonprofit groups for a year.
Cisco didn't estimate cost savings from the layoffs, but Mr. Stix projected that they could reduce Cisco's operating expenses, which totaled $7 billion in the fiscal year ended July 2000, by 10%.
Mr. Chambers said he hoped that by acting decisively now, he could avoid future job cuts. But analysts said Cisco's business was likely to deteriorate further before improving. "It's going to be a while before Cisco recovers," Mr. Theodosopoulos said.
As 4 p.m. Friday in Nasdaq Stock Market trading, Cisco shares slid 9.6%, or $ 2.19, to $20.63, a new 52-week low. The stock has lost nearly three-fourths of its value since hitting $82 last March.
(END) DOW JONES NEWS 03-11-01
09:50 PM |
