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Cisco Systems to cut 7 per cent of work force in shift to software - The Globe and Mail

Cisco Systems Inc. said it would cut nearly 7 per cent of its work force, posting charges of up to $400-million (U.S.) in its first quarter, as the worlds largest networking gear maker shifts focus away from its legacy hardware towards higher-margin software.

The gradual move to fast-growing sectors such as security, the Internet of Things and the cloud is a response to sluggish demand for Ciscos traditional lineup of switches and routers from telecom carriers and enterprise customers, amid intense competition from companies such as Huawei and Juniper Networks Inc.

Revenue at the companys routers business fell 6 per cent in the fourth-quarter ended July 30, while switching unit revenue was up 2 per cent. Orders from service providers fell 5 per cent, while revenue in emerging markets fell 6 per cent, Cisco said.

Cisco projected flat revenue in the first quarter and gave an earnings forecast that was shy of analysts estimates, saying it expected adjusted earnings of 58 cents to 60 cents a share, versus Wall Street estimates of 60 cents.

Were uncertain how to model any improvement in those two [segments] in particular going forward, chief executive Chuck Robbins told analysts during a call, speaking of service providers and emerging markets.

Mr. Robbins, who took over from John Chambers in July last year, has been steering Cisco toward more software and subscription-based services. Security, which Mr. Robbins said was the top priority of all its customers, posted a revenue gain of 16 per cent in the quarter.

Gross and operating margins also improved in the fourth quarter, reflecting cost savings, Cisco said.

Its part of what were driving in our shift to software, chief financial officer Kelly Kramer said. Those businesses have great margins and its part of the overall transition.

Cisco, which is also betting on acquisitions to fast-track growth, has made 10 acquisitions since Mr. Robbins began as CEO, according to FactSet StreetAccount data, from Internet-of-Things startup Jasper Technologies to cloud security provider CloudLock.

Shares of the company were down 1.4 per cent in after-hours trade to $30.30.

The shares had gained 13.2 per cent this year through Wednesdays close, compared with the 6.8-per-cent increase in the broader S&P 500 index.

Ciscos fourth-quarter net profit rose to $2.81-billion, or 56 cents a share, from $2.32-billion, or 45 cents, a year earlier. Excluding items, the company earned 63 cents a share.

Revenue fell 1.6 per cent to $12.64-billion.

Analysts on average had expected a profit of 60 cents and revenue of $12.58-billion, according to Thomson Reuters I/B/E/S.

Cisco, which expects to start laying off employees from the first quarter, said it will take a charge of about $325-million to $400-million in the quarter. On the whole, the company expects a pretax charge of $700-million.

Technology news site CRN, citing sources, first reported on Tuesday that Cisco planned to lay off about 14,000 employees, or nearly 20 per cent of its work force.

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