SAN JOSE, California — Cisco began filling in employees Thursday about how they will be affected by the San Jose tech stalwart’s restructuring that’s poised to eliminate thousands of jobs worldwide, in a new setback for Silicon Valley.
Terminations and severances are being eyed by Cisco to help “rebalance” its workforce, a potentially wrenching plan that includes shedding real estate and wide-ranging layoffs.
Cisco estimates that it will eliminate about 5% of its workforce worldwide, which could work out to a loss of more than 4,100 workers. That number arises from the 83,300 full-time workers that Cisco employed at the end of July 2022, as disclosed in a filling with the Securities and Exchange Commission.
The company intended to begin discussions with its worldwide workforce regarding the wide-ranging changes in store for Cisco and how the shifts might impact staffers, Chuck Robbins, Cisco’s chief executive officer, said during a conference call to discuss the company’s latest quarterly financial results.
“We’re actually speaking to our employees” about the restructuring on Thursday, Robbins said during the conference call. “I’d be reluctant to go into a lot of detail here until we’re able to talk to them.” Company managers began to discuss the impact on Wednesday with some workers, Cisco executives told analysts during the call.
The company expects to take charges of well over a half-billion dollars to cover costs for an array of initiatives arising from the restructuring, the company disclosed in the SEC filing.
“Cisco currently estimates that it will recognize pre-tax charges to its … financial results of approximately $600 million consisting of severance and other one-time termination benefits, real estate-related charges, and other costs,” the tech company said.
During the conference call, company executives insisted that the layoffs should be viewed as a reallocation of workers.
“What we’re doing is rightsizing certain businesses,” Robbins said. “We’re really focused on resources moving into the enterprise networking space, accelerating our platform strategy. We will be making significant investments in security and beefing up our team there and the capacity to continue to innovate there. Those are important areas.”
Cisco’s actions are not merely job cuts for the sake of chopping expenses, emphasized Scott Herren, Cisco’s chief financial officer.
“Don’t think of this as a headcount action that is motivated by cost savings,” Herren told analysts on the conference call. “This really is a rebalancing. As we look across the board, there are areas where we would like to invest more.”
These include more cloud-delivered products, the company said.
The wide-ranging shifts mean that some workers will be left without jobs because their skills don’t match the requirements for the new areas of Cisco’s future focus.
“In a perfect world, you’d have 100% skill match, and you can take the people with skills in certain areas and just move them to where we need to invest,” Herren said. “Unfortunately, it’s not a perfect world.”
Cisco occupies a huge amount of square footage in office buildings around the world. The company said reducing the property that it owns or leases will a key component of the restructuring.
“There’s a second piece of this, that’s really about rightsizing our real estate portfolio,” Herren said. “We’ve got a long tail of small offices distributed around the world that are significantly underutilized, and in fact, unused in some cases.”
The restructuring program could begin in short order, potentially within weeks or a few months.
“Cisco will take action under this plan beginning in the second quarter of fiscal 2023,” the company stated in an SEC filing. Cisco’s fiscal second quarter began around Nov. 1 of this year and would be concluded around Jan. 31 of 2023.
Despite what is likely to be plenty of short-term pain as workers are dismissed from their jobs, Cisco insists that the restructuring is vital to the company’s success.
“The people impact is difficult,” Cisco CEO Robbins said at as the conference call began to wrap up. “It’s always a difficult decision, but we have a lot of opportunities. I’m very optimistic about the future.”
