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Cisco has improved profitability immensely, and it has just announced that it will cut 4000 jobs to become “nimbler amid a slower pace of sales growth” according to USA Today. Mobile and cloud technology are the new platforms to invest with the highest growth revenues. Cisco’s problem is that its main product line is a in networking equipment- where it is a market leader who saw its sales soar into the double-digit percentages these past years. However they will lose is they try to fight the trend; their analysis shows that sales on their main products, consisting of switches, routers, WIFI controls, modems, are slowing in growth.
Sales forecasters and analysts in funds and in their own back office look at growth trajectory as an input in a company’s valuation. Asian demand was down by 3%, but North and South American sales rose by 5%, ultimately the overall product sales are up by 4%. CEO John Chambers commented on the economy which he felt affected Cisco’s growth, “this recovery is more mixed and inconsistent than the others I have seen. The [macroeconomic] environment in terms of our business is improving slightly but nowhere near the pace that we want.” He went on to explain the need for job cuts in light of the company’s increased profitability, that by cutting 5% of its workforce, the company would have a faster way of meeting customer demands and of changing technology. This wasn’t the first mass layoff for Cisco; as the company cut 500 jobs in March and 1300 last July.
Cisco expects slowing revenue growth and investors responded in a sell-off of its shares in after-hours trading. The share price fell by 9% to $23.85. The cloud computing disruption may have permanently altered consumer need for the physical devices that maintain and transmit data, as more and more technology finds its way into the cloud. Cisco is however maintaining its own private cloud networks, and will likely change their product lines into product/service, with more development into cloud space.
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