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Tuesday, July 12, 2011

Massive Job Cuts Coming at Cisco

Posted By on Tue, Jul 12, 2011 at 10:45 AM

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Cisco Systems is planning to cut up to 10,000 jobs, Bloomberg News reported late Monday. That's obviously a huge number, but it seems even huger if you think of it this way: It represents more than half the number of jobs the entire U.S. economy created in June.

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The numbers will be large enough -- reportedly, 7,000 jobs will be cut in August -- to noticeably affect the Labor Department's monthly employment reports.

This is obviously not good news for an economy beset by a seemingly intractable unemployment problem. On the other hand, it's not really representative of overall problems.

Cisco has done this to itself. Most other big tech firms, including Cisco's direct competitors like Hewlett-Packard and Juniper Networks, are doing pretty well. Same deal with other companies, like Microsoft, Google, and Apple, as well as social-media companies both public and private, like Facebook and LinkedIn. So why is Cisco faring so poorly, despite having the same "visionary" CEO, John Chambers, who made it such a huge success in the first place? In short, his eyes got too big, and he wanted a little glamour. Cisco's core business of routers and switches, which move data around for corporate customers, phone carriers, and Internet service providers, is boring as hell. Chambers took Cisco into various consumer businesses -- home networking equipment, video equipment and, most famously, the Flip camcorder -- that, as a whole, have flopped. In doing so, he took the company's focus off networking equipment at perhaps the worst possible time. While Chambers was busy worrying about reaching Best Buy shoppers, prices for routers, switches, and servers were falling fast. Companies like Juniper and Aruba Networks were working lean and mean -- and lowering their prices. At the same time, foreign competitors, especially in China, were piling into the market, putting yet more pressure on prices. Meanwhile, Cisco kept its prices high -- somewhat understandably, since for years it has dominated the networking market and could call the shots. But now it's losing market share -- fast. Its share of the switch market fell 5.8 percent in the first quarter, to 68.5 percent. Its share of routers fell 6.4 percent, to 54.2 percent. Juniper, meanwhile, was gaining share. Analysts had spent months calling on Cisco to shed its consumer business entirely. In April, it shut down its Flip operation, laid off 550 people, and consolidated other consumer divisions into various groups within the company. The cuts will no doubt make analysts and investors happy (one of them told Bloomberg that Cisco has "too many employees"), but they will continue clamoring for Cisco to shed its Linksys home-router business as well as Scientific Atlanta, which makes TV set-top boxes. And Cisco will almost certainly do so. Chambers will have to let go of his dream of being a tech-mogul-cum-household-name, at least for now. Maybe he can just start wearing black turtlenecks and jeans.

Dan Mitchell has written for Fortune, The New York Times, Slate, Wired, National Public Radio, The Chicago Tribune, and many others.

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Dan Mitchell

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