Although the economy continues to improve, businesses have remained highly cautious about their finances thanks to the effects of four consecutive years of recession. As a result, many are still choosing to make cuts wherever possible in a bid to build up funds which could potentially cushion them in the event of a further economic downturn.
This week, network equipment giant Cisco Systems has made a shock announcement in which it revealed plans to cut 4000 positions, equating to around 5 per cent of its total workforce. In a statement, the company claimed that the decision was due to an “uncertain” future demand for its products.
However, the news will undoubtedly anger employees as Cisco recently posted strong profits for the fourth financial quarter of the year. Net income amounted to $2.3 billion, or £1.5 million, comparing favourably to the $1.9 billion posted in the fourth quarter of last year.
Furthermore, revenues in the period grew by 6 per cent to $12.4 billion, bringing the total results largely in line with analysts’ expectations. While many would argue that this puts Cisco in a strong position financially, executives remain concerned that the firm’s recovery has failed to meet expectations.
Chief executive John Chambers claims that, while demand in the US market has improved somewhat, this progress has been marred by inconsistencies in emerging markets such as Japan and China.
He says; “I have learned in this industry you lead with your mind, not your heart.
“The environment in terms of our business is improving slightly but nowhere near the pace we want.
“We have to very quickly reallocate the resources.”
He added that at least some of the downsized workers can expect to be rehired for other posts, indicating that the firm plans to use existing staff to expand the business in other areas. At present, Cisco is attempting to expand its position in new technological areas such as cloud computing and internet security in a bid to appeal to a wider market.
The latest round of cuts mark the third consecutive summer in which Cisco has chosen to make dramatic changes to its staffing levels. In July 2011, 6500 jobs were lost through company restructuring, while last year the global economic conditions caused the company to cut a further 1300 jobs.
At present, Mr Chambers expects the firm to gain revenues of between $12.2 billion and $12.5 billion for the current quarter. This meets analysts forecasts of $12.5 billion, despite being at the lower end of the prospected 3 per cent to 5 per cent growth.
Do you think Cisco is making the right decision in downsizing consistently, or will this put the company on the back foot should an economic boom occur?
Previous Post
BRC Scraps Campaign to Freeze Business Rates
