Cisco reported impressive 18 percent growth in its latest financial statement but is nonetheless moving forward with massive job cuts. The company said Thursday it was cutting 4,000 jobs because sales growth had been too slow and it was concerned regarding how stable the future would be.
The 18 percent growth resulted from growing demand for networking devices now that phones, computers, tablets and other devices are taking over many households. Sales of Cisco's routers, modems, and access points increased but are now beginning to slow.
Shares Plummet, Inconsistent Sales
News of the cuts brought a massive dip in Cisco's share value Thursday. Shares fell 9 percent after pre-market trading saw a slightly smaller sell-out. Revenue, profit and sales were all measurably higher than they were last year during the same period, but Cisco expressed concern about the future.
Sales were up in the United States by 5 percent, whereas Cisco was down in its Asian market.
"This recovery is more mixed and inconsistent than the others I have seen," CEO John Chambers told analysts. "The environment in terms of our business is improving slightly but nowhere near the pace that we want."
Instead of the massive improvements that Chambers and other executives were hoping to see, the 18 percent growth -- which many companies would love to see -- was not enough to ease Cisco's worries. Advances in cloud computing from other companies have left Cisco in an awkward spot. Newer cloud technologies allow businesses to store their data on private servers, which are more effective and cheaper than what Cisco offers.
The Cutting Solution
In order to speed up innovation and respond to what Cisco's customers want, Chambers and the other executives have decided to cut 5 percent of Cisco's total workforce. By becoming a slimmer company, they hope that it can turn around and produce faster growth since they are still in recovery mode.
Getting rid of employees has been Cisco's response to many bad financial reports; this will be the third round of cuts in the past year. In March, 500 employees were laid off, and in July, 1,300 jobs were eliminated.
Of course, profits will always rise when jobs are cut but Cisco can only continue down that road so long before it has no one left. Instead of getting rid of all of its workers, Cisco needs to find a way to navigate in the cloud market.
Chambers said he was still confident Cisco could be the No. 1 IT company in the world. The decision to cut was also influenced by global instability.
"The inconsistency of global GDP growth, and lots of time you see northern Europe start to get stronger, you see the issues in emerging markets start to get softer. You see us successful in one category, switching, and you see us not as successful except in the edge in terms of the routing."