Count us Fools among the rare few who are buying what Cisco (Nasdaq: CSCO) is selling. Earlier today, the data-networking specialist announced plans to cut 1,300 employees.
"We are performing a focused set of limited restructurings that will collectively impact approximately 2% of our global employee population," the company said in a statement. "These actions, subject to local legal requirements, including consultation where required, are part of a continuous process of simplifying the company, as well as assessing the economic environment in certain parts of the world."
Really? The global economy is to blame? I suppose that jibes with recent news from infrastructure-supplying peers Acme Packet (Nasdaq: APKT) and Informatica (Nasdaq: INFA), both of which preannounced worse-than-expected quarterly results because of weak demand from clients.
Investors aren't waiting around to assess whether Cisco's explanation is reasonable; the stock finished the day down nearly 6%.
My guess is they're right to be concerned. Last year at this time, Cisco cut 6,500 employees. Short-term profits recovered as a result, but not enough to forestall another round of layoffs. So long as Cisco is using a grab-bag strategy -- "here, let's see if this works!" -- there's no telling when the firings will end.
For its part, Cisco said in its statement that the cuts were part of an ongoing evaluation of the company's "organizational structure." Management wants simplicity, faster decision-making, and agility, among other things. And all that would be great if Cisco had the right strategy to begin with.
But does it? There's really no way to tell. Last month, former Chief Strategy Officer Ned Hooper left to create an investment partnership. Management will engage with the fund at some level -- and that's despite Cisco's history of declining returns on capital during the years Hooper ran point on acquisitions.
All we know for sure is that Cisco, like Microsoft and Oracle, is selling a whole platform of gear, software, and services for networking an enterprise, figuring that once clients commit at this level, there's very little chance they'll leave. History says that's a smart play. Just don't expect it to prevent further cuts, especially now that a VMware (NYSE: VMW) plan to virtualize entire networks threatens to reduce demand for Cisco's gear.
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