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Is Cisco getting ready to close Linksys and announce more layoffs?

There's an unconfirmed rumor that come this September, Cisco will lay off as many as 3,000 employees and close a profitable business unit.

Fri, 7/6/12 - 11:49pm    View comments

Update 7/23/12:

Confirmed: Today Cisco will layoff 1,300 employees
 

Recently, Network World (NWW) published a couple of scathing articles:

1. Cisco continues to battle cloud burst

2. Linksys firmware upgrade for Wi-Fi routers angers some users

NWW's articles are concerned about Cisco's latest consumer marketing misstep, where it forced the users of Linksys routers into becoming Cisco Connect Cloud customers.

Meanwhile, there's an unconfirmed rumor that come this September, Cisco will lay off as many as 3,000 employees and close a profitable business unit. I'm going to go out on the limb by making the assumption that Linksys will be the profitable business unit (BU) Cisco will close.

So why am I assuming Linksys will get the ax?

Well, lets look at the 2-year (FY10/FY11) Quarterly sales performance of Linksys/Pure Digital (i.e. Virtual Home):

Linksys/Pure Digital FY11 sales of $779 million were down -$191 million (i.e. -19.69%) from FY10 sales of $970 million.

According to Cisco's Q3'FY11 earnings call transcript:

"During Q3 FY '11, we did recognize restructuring charges to our GAAP financial results, with a pretax impact of approximately $150 million, and this was in connection with our Consumer business. This included the announced exit of our Flip Video business and included charges related to inventory, supply chain, severance and other items... On Flip, Flip was in the results for part of the quarter, but it's out for next quarter."

Interestingly, Cisco reorganized its product sales reporting categories during Q1'FY12:

According to Cisco's Q4'FY11 earnings call transcript, Cisco CEO John Chambers stated:

"We'll continue to stay focused with Linksys in terms of key product area. We'll improve the gross margins on Linksys and the growth rates, and I think Martin will do a good job on that."

Linksys sales are now reported under the Cisco product sales reporting category - Other:

Alarmingly, Cisco's Nine-Month FY12 "Other Sales" (which includes Linksys) of $792 million are down -$432 million (i.e. -35.29%) from FY10 sales of $1,224 million and down -$246 million (i.e. -23.69%) from FY11 sales of $1,038 million.

It's because of the declining Nine-Month FY12 "Other" (which includes Linksys) sales results that I believe Linksys will be the profitable business unit (BU) Cisco will close!

Related stories:

Unconfirmed rumor: Belkin will guillotine Linksys staff in October

Unconfirmed rumor: Belkin paid a mere $65 million for Linksys

Unconfirmed rumor: Belkin to purchase Cisco Linksys division

Unconfirmed rumor Cisco is laying off 1,600 WAAS engineers and sales team members
 

What's your take?

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