Cisco to Lay Off 1,100 More Workers--Update

By Anne Steele Features Dow Jones Newswires

Cisco Systems Inc. said it would lay off another 1,100 employees and forecast a drop in quarterly revenue as the networking company contends with market shifts, including customers favoring software over hardware.

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The fresh round of cuts expands a previous restructuring plan announced last August that was designed to cut 5,500 jobs, or 7% of Cisco's workforce at the time. According to a company filing, Cisco's head count as of Jan. 28 -- amid the first round of cuts -- was 71,959.

Shares of Cisco fell 8.3% to $31 after hours as the company also said revenue ticked down in the fiscal third quarter and would drop more sharply -- by 4% to 6% -- in the fourth quarter.

Cisco, which disclosed the layoffs in its quarterly earnings report, said it has booked charges of $614 million during the first nine months of the fiscal year and expects to book $150 million to $200 million more during the fourth quarter.

Cisco Chief Executive Chuck Robbins is trying to shift the business from hardware to software and services. The company is making gains in areas such as security, but it faces weak customer spending in its core networking hardware businesses.

Cisco has seen steep drops in revenue in its service provider video business, including a 30% revenue decline in the latest quarter. That followed a 41% drop in revenue for that business in the second quarter, which ended in January. Last year, the company had benefited from a national program in China rolling out video set-top boxes to Tier 2 and Tier 3 cities. Although Cisco set-top boxes weren't used, the company provided the smart cards for those boxes for secure access.

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"It was very, very high margin," said Chief Financial Officer Kelly Kramer, in a conference call with investors in February. But that program had "dramatically" slowed down, she said.

Cisco spent about a decade trying to build its service provider video business after it announced in 2005 it would acquire Scientific-Atlanta Inc. for $6.9 billion. In November 2015, the Silicon Valley giant sold that business, which it called Connected Devices, to Technicolor for $600 million in stock and cash.

At the time, Cisco said video would continue to be part of its strategy in cloud and software-based services but that the Connected Devices business required a new approach to business strategy, organization and investment.

For the quarter ended in April, Cisco's revenue edged 0.5% lower to $11.94 billion, as a decline in service revenue more than outweighed a modest uptick in product revenue. The company earned $2.52 billion, or 50 cents a share, up from $2.35 billion, or 46 cents a share, a year ago. Excluding certain items, adjusted earnings rose 3 cents to 60 cents a share.

Analysts polled by Thomson Reuters were looking for an adjusted 58 cents a share on $11.89 billion in revenue.

Total operating expenses were 8.2% lower from a year ago as the company spent less on research and development, sales, marketing and overhead.

For the final quarter of the fiscal year, Cisco said it expects adjusted profit of 60 cents to 62 cents a share, compared with the average analyst estimate of 62 cents.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

May 17, 2017 17:38 ET (21:38 GMT)