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UBS On What's Really Going On At Cisco

Mamta Badkar

At the start of the week it was reported that Cisco Systems Inc. would be laying off 10,000 employees. 7,000 were expected to be gone at the end of August, with 3,000 accepting buyouts.

UBS gives its take on the company:

  • The current 10,000 figure is inconsistent with previous layoffs. During the tech bubble and the financial crisis, the company cut 20% and 6% of its workforce. With lack of revenue decline, this number which represents about 15% of its workforce seems extreme. Such a move will affect its product lines.
  • Cisco's business model is being challenged and its pricing aggressively to retain market share. The layoffs are just a way to expand operating margins since sales growth challenges persist. 
  • In the past two years Cisco has lost market share because of lack of new products, managerial issues, and an aimless corporate strategy. Now the company wants to focus on its core market and is using price as way to preserve it. This is expected to affect stock performance of its competitors.
  • Cisco announced an upgrade to its Catalyst 6500 systems, a move that is expected to help the company preserve its market share by delaying customers from switching to another system.

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