Cisco Could Cut 5000 Jobs in August: Analyst

Denial, being upset, and then acceptance are the necessary sequence of emotions people experience before moving on toward a recovery.

It's no different for companies and for Cisco (NASDAQ:CSCO). The networking gear maker is planning a massive job cut that could mean about 5000 employees could lose their jobs in August, according to an analyst at Gleacher and Company.

We believe CSCO could initiate one of its largest reduction-in-workforces (RIF) in August by eliminating approximately 5,000 jobs (about 6.8 percent of the 73.4k employees in April), analyst Brian Marshall wrote in a note to clients.

While this is a difficult decision to make, in our view, it is required in order to maintain the competitiveness of CSCO going forward, the analyst said.

Massive job cuts is not new to Cisco, which made a similar move in 2001 when it slashed about 8000 jobs.

In May, Reuters reported that Cisco Systems Inc is expected to cut thousands of jobs in possibly its worst-ever round of layoffs to meet Chief Executive John Chambers' goal of slashing costs by $1 billion.

Four analysts contacted by Reuters estimated the world's largest maker of network equipment will eliminate up to 4,000 jobs in coming months, with the average forecast at 3,000. That would represent 4 percent of Cisco's 73,000 permanent workers. It also has an undisclosed number of temporary contractors.

Marshall expects the potential job cut could incrementally reduce the company's pro forma operating expenses by about $1 billion a year and would be 8 percent accretive to his calendar year 2012 earnings per share.

The job cut could add about 14 cents to the analyst's 2012 earnings forecast of $1.74 a share, implying an estimate of $1.88 a share.

If the company announces this job cut, then it would be the third major initiative of Cisco's restructuring program in the past 6 months after restructuring of the consumer business in April, and reorganization of management structure in May.

Cisco CEO John Chambers recently took responsibility for mistakes in managing Cisco. In an internal memo, he said he has made some missteps and is working to move forward and address its organizational complexity, lack of competitive products, focus, and time to market.

Thus, some of the layoffs were already expected to come from businesses that Cisco pulls out of in coming months. Chambers, who has led Cisco for 16 of its 26-year history, has said he will pull out of some nonstrategic areas where Cisco is not the No. 1 or No. 2 player.

In April, Chambers said Cisco would dump its Flip video camera business, axe 550 jobs and take a charge of $300 million related to the move.

Marshall said Cisco should also lower its long-term financial targets. He expects the company to guide revenue growth of 10 percent plus or minus 3 percent and operating margins in the range of 25 percent, plus or minus 3 percent.

Currently, Cisco expects long-term revenue to grow in the range of 12 percent to 17 percent and operating margins between 28 percent and 31 percent.

Cisco has averaged 11 percent annual revenue growth over the past 5 calendar years, the analyst said.

Shares of California-based Cisco were down 2 percent to $15.44 on NASDAQ. The company's shares have declined more than 30 percent from last year.