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Cisco confirms layoffs, cost cuts

Mighty Cisco proved it is mortal this week with an unprecedented round of layoffs which CEO John Chambers says is necessary if the company is to remain buoyant through what he describes as a much longer than anticipated slowdown.

Cisco Systems will cut its workforce by as many as 8,000 employees and take other cost-cutting measures in the face of a deteriorating market.

"We're taking these steps because of the continuing slowdown in the U.S. economy and initial signs of a slowdown expanding to other parts of the world," John Chambers, president and CEO of the networking hardware giant, said in a statement. "We also now believe that this slowdown in capital spending could extend beyond two quarters."

Cisco said it will cut 2,500 to 3,000 temporary and contract workers and 3,000 to 5,000 regular employees through voluntary attrition, "involuntary attrition" and the consolidation of some positions.

Involuntary attrition refers to Cisco's policy of reviewing the "bottom 5 percent performers" on an annual basis, according to a spokesperson.

As a result of the job cuts, Cisco plans to take a one-time charge of $300 million to $400 million by the end of the fourth quarter of fiscal 2001.

The reduction of regular permanent employees will be part of a broader effort to align personnel around profit contribution and improved efficiency, Cisco said. Cisco has about 44,000 regular employees worldwide, plus some 4,000 temporary workers.

Other expense reductions include aggressive cost cutting in discretionary spending such as contract services, travel and marketing expenses.

Chambers warned in late February that the economic slowdown in the United States was worsening and hinted that layoffs could be forthcoming at Cisco. At a press conference following his keynote at Oracle's AppsWorld in February, Chambers said he would do what he could to avoid layoffs, but noted that six consecutive quarters of payroll growth at Cisco would require reallocation of resources.

Speaking to analysts and investors during a quarterly earnings conference call Feb. 6, Chambers said he believed the next several quarters would be challenging. The "abrupt" slowdown in the U.S. economy and a slowdown in service provider spending led to a second quarter that was "even more challenging" than Cisco anticipated, Chambers said.

Cisco posted earnings for the quarter ended Jan. 27 of 18 cents per share, excluding one-time charges, which was 1 cent shy of First Call consensus estimates of 19 cents per share.

Orders from service provider customers, hard hit by tightening capital markets, dropped about 40 percent in the second quarter, Chambers said.

Sales of enterprise products remained strong in the quarter, but Chambers said he is concerned about capital expenditure budgets, especially in the manufacturing sector. Many customers in the manufacturing sector say they are experiencing a recession, Chambers said.

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