Awaiting the Axe at Cisco

Earlier this week, Cisco Systems (NASDAQ:CSCO, news, filings) reported reasonable earnings but a depressing near term future, and promised a major cost savings effort to save $1B in annual costs.  We all know what that means.  Yep, top management will probably have to forgo their bonuses to show solidarity with the several thousand employees they will be downsizing.  Now is the toughest time for those employees, as they know the axe is coming but not yet for whom.

After spending tens of billions of dollars swallowing everything that wasn’t nailed down, is it any surprise that they now have indigestion?  Cisco has more than 73,000 employees, and most analysts seem to expect a rather larger reduction than even the 2,000 they gave the boot back in 2002 when the tech world was collapsing.  Only this time, it’s just Cisco that’s reeling – which is good news in that the market may be able to absorb the talent Cisco will send home.  In the core switching and routing business, competitors are gaining ground and pressuring Cisco’s market dominance on both price and functionality amidst the never ending drumbeat of traffic growth.

Sometimes I wonder if it isn’t the fiscal duty of any company that gets too big to manage to voluntarily break itself up into manageable, growable pieces.  There’s this threshold of several hundred billion dollars in marketcap where things always seem to fall apart sooner or later.  But I guess the desire to become ever larger and more powerful is too deeply ingrained in our species genetically for it ever to happen.

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Categories: Financials · Telecom Equipment