Cisco Layoffs Leading To Business Transition?

The layoff announcement may have come as a surprise to some investors, but there were unconfirmed reports of a pending layoff prior to the earnings release. CRN, a news and analysis sources for VARs and technology integrators, suggested that Cisco is planning an overhaul of corporate structure which would include 14,000 employees losing their job.

CRN's report was validated, although not confirmed, by analysts at Jefferies who commented in a research note that they have "picked up on concerns that Cisco may be looking to reduce headcount in the not-too-distant future."

Related Link: This Analyst Predicted 14,000 Cisco Layoffs Back In January

Moreover, Trip Chowdhry of Global Equities Research suggested back in January that Cisco could eliminate up to 20 percent of its entire 72,000 workforce — or roughly 14,000 employees.

Cisco Explains Why

Cisco said that its latest restructuring initiative will enable the company to "optimize our cost base in lower growth areas" in addition to investing in "key priority areas."

The company highlighted security, the Internet of Things (IoT), collaboration, next generation data center and the cloud as being the core components its future business that require greater investments.

Cisco also noted that all of the cost savings from the job reductions will be re-invested back into the business to better "focus on our areas of future growth."

Wall Street Comments On M&A Plans

Analysts at Wunderlich suggested that Cisco's workforce reduction could be seen as a "means of funding M&A" activity.

Cisco has been mentioned in the past a potential suitor to acquire the security vendor FireEye Inc FEYE several times in the past, most recently in late June.

The analysts at Wunderlich did however suggest that "borrowing is required to sustain return of capital and M&A without cash repatriation," so this may dispel chatter of a potential large scale acquisition in the near term.

Other rumored M&A deals involving Cisco include speculation in late June that the company was looking to acquire NetApp Inc. NTAP.

Analysts at Baird also speculated that Cisco should acquire Pure Storage Inc PSTG.

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