The biggest takeaway from Cisco’s earnings Wednesday was its massive layoff plan that will roll out next quarter.
Up to 6,000 employees, or 8% of the global workforce, will lose their jobs as a result of this. It’ll be the largest lay off Cisco's had since 2011, when 6,500 jobs were cut.
Cisco’s CEO John Chambers didn’t specify where the cuts will come from during the company's earnings call Wednesday, but implied that a lot of it could happen in emerging markets, where sales are tanking.
“Some of our markets are slowing down, and unfortunately, you can’t move sales reps from one country to another with different language characteristics,” Chambers said during the call.
The biggest hit region in sales last quarter were emerging markets. They collectively lost 9% last quarter, led by countries like China, which dropped 23% in sales.
Chambers cited “significant slowdown in emerging markets” as a major factor that hurt Cisco’s performance last year. And it could get worse in the long term. “We’re not expecting any material rebound in emerging market conditions,” Chambers said.
He further elaborated when he told the New York Times that the job cuts would come from areas like, “sales people in one country that isn’t returning as much in revenue, or service people where the business is in a new language.”
The outlook for China is particularly worrisome. In each of the last four quarters, sales in China have dropped significantly. In November 2014, Cisco said orders from China fell 18%, followed by another 8% decline in the next quarter. It fell 8% again in the following quarter, and a massive 23% in its latest report.
Part of this decline could be attributed to last year’s NSA revelations that raised huge security concerns over U.S. tech services. As an unnamed former NSA official told VentureBeat in a recent article:
The constant stream of news about NSA’s activities has raised broader questions, particularly internationally, about the security of technologies coming from U.S. companies. This has been measurably hitting the bottom lines of companies like Cisco and Juniper and caused many companies to look to alternatives like Huawei.
Of course, this isn’t anything new. In fact, Chambers has addressed this issue several times in the past year.
When asked about the drop in Chinese sales in December 2013, Chambers said, “I do think (the NSA revelation) is a factor in China.” In May 2014, in response to the alleged NSA spying programs, Chambers wrote the Obama Administration, “if these allegations are true, these actions will undermine confidence in our industry and in the ability of technology companies to deliver products globally.”
Obviously, the NSA revelation isn’t the only reason for Cisco's job cuts. But there’s no question it’s having a huge impact on Cisco’s bottom line. Chambers said that, ultimately, it all comes down to market conditions.
“It (job cuts) is the most difficult decision we make as an operating committee, but the market waits for no one, and if we’re going to lead this market, we’re going to be decisive in it.”
We've reached out to Cisco multiple times for comment, and we'll update if we hear back.
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