Today, Cisco announced strong FY13 results reflecting how well we executed as a company over the last year. The Sourcefire acquisition was discussed during the earnings call as "a major step forward to being our customers' leading security partner and our aspirational goal to be the #1 security company."
Despite our strong FY 13 results, Cisco continues to face a challenging macroeconomic environment. We have seen two things change: first, the economic recovery is slower and more inconsistent, with global GDP continuing to tick down for calendar year 2013 and global challenge across in Southern Europe, several of the emerging markets, and Asia Pacific; and second, the pace of change is continuing to increase.
In this environment, Cisco is focused on aligning resources to our top opportunities, balancing expenses to revenue, driving efficiencies in the business, and investing in growth. During our earnings call today, we announced that in order to execute on the portfolio investment and operational efficiency opportunities we see in fiscal 2014, we are rebalancing our resources with a workforce reduction which will impact approximately 4,000 employees or 5% of our global workforce.
I want to be very clear that Sourcefire employees and management will not be impacted by this workforce reduction. Consistent with our long-term goal to be the #1 IT company in the world, we expect to continue to invest in our top opportunities, including security. We expect Sourcefire employees will ask your management teams about today's announcement and we want you to be prepared with our response. Please cascade this message appropriately. Below is a direct Q&A for your teams.
We are continuing to simplify Cisco to accelerate through change with greater speed, flexibility and agility. If you have questions regarding integration and the actions announced today, please feel free to contact me, Julie Ross or Susan McDonough.
Thank you,
Chris
Cisco Earnings Q&A — Sourcefire Acquisition
Q:
What are Cisco's top opportunities?
A:
Consistent with our long-term goal to be the #1 IT company in the world, we expect to continue to invest in those that help our customers achieve their business goals. These include, but aren't limited to areas such as software, services, mobility, security, data center, core networks, and Internet of Everything.
Q:
Will Sourcefire employees and management be impacted by the workforce reduction?
A:
The Sourcefire acquisition remains subject to regulatory review in the United States and elsewhere and has not yet closed. Employees and management of Sourcefire will not be impacted by the workforce reduction.
Update 4:30pm on Wednesday, August 14, 2013
4,000 mid-level Cisco management employees will get guillotined starting Q1'FY14, while simultaneously, Cisco will hire 400 new sales reps and SEs around the world.
"Our headcount increased by 675 employees in the third quarter of fiscal 2013 and increased by approximately 7,500 employees in the first nine months of fiscal 2013. The increase for the third quarter of fiscal 2013 was attributable to headcount from new acquisitions, as well as strategic hiring primarily in engineering and services, partially offset by the reduction in headcount related to the sale of our Linksys product line. The increase for the first nine months of fiscal 2013 was attributable to these factors as well as the acquisition of NDS at the beginning of fiscal 2013."
"In order to execute on the portfolio investment and operational efficiency opportunities that we see in FY '14, we are rebalancing our resources with a workforce reduction, which will impact approximately 4,000 employees or 5% of our global workforce. We expect to take this action starting in Q1 FY '14 and currently estimate recognizing pre-tax charges to our GAAP financial results of up to $550 million. We expect that approximately $250 million to $300 million of these charges will be recognized during the first quarter of FY '14 with the remaining amount recognized during the rest of the fiscal year."
"The most difficult decisions we make as leaders are those that impact our employees. However, we will always take the necessary actions to efficiently manage our business for the long run."
"I have a kind of a blunt question if the environment is improving why are you guiding a little bit conservatives and why are you laying off 4000 people which is about 5% of your work force if I understand correctly?"
"Sure so the environment in terms of our business is improving slightly but nowhere near the pace that we want. You know what product orders have done, minus the acquisition and spin offs because that gives you a feeling for what our growth is going to be and those will bump them up or down. It's just not growing at the speed we want, the inconsistency of global GDP growth and about the 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. You begin to see a balance which was 13% growth in emerging markets back down to 8% in terms of the opportunity and so the combination of weakness in APJC offsetting what went on in Europe the strength in the U.S. offset by what went on in emerging markets, et cetera, is kind of leveling off. So, Tal what we see is slow steady improvement but not at the pace we want.
"Now if we're going to lead in this industry the one thing I have learned over the years is you're the first mover. We have to very quickly reallocate the resources. So, you know a fair amount of that 4,000 people will be allocated to new growth opportunities.
"The second thing is even though Gary I think you and I would agree we were very pleased with how we made progress in the last two years on speeding up decisions, in today's marketplace, they're almost up exponentially on how quickly not only decisions have to be made, but how quickly you implement those.
"Those need to be done with small things. We just have too much in the middle of the organization. When you have that type of layers and standard controls without meaning to, very well-meaning people begin to really look at how they add value to the decision made and probably we're just not moving with the speed that we need in this area. So you can see us focused very much in this area on expanded control and also layers.
"It's all about speed and pace in this new industry which we intend to balance in. You've seen our commitments to growing earnings on most quarters faster than revenues and we see our markets grew, we're gaining market share even at these lower numbers. Everywhere we run business in the world grows and keeps expenses in line with revenue growth and driving up productivity. Candidly, we didn't drive productivity this last year. So, with the change in the macroeconomic environment and you saw this from the better officials, you've seen it in all the forecasts on emerging countries, etcetera and you saw it in our business numbers with inconsistent data even in our own operations, which tends to be more lumpy than I like to see. This is just good business management. And I'd learn in this industry you lead with you mind, not with your heart and this is something that we think will allow us to grow our profits, but also most important to achieve the number one position in the industry and move our resources very quickly to the growth opportunities. If this were a normal pace, you can move those resources over two years with attrition and realignment.
"But I think Gary given what we want to do on speed and organizational structure and our ability to move fast, you are going to see us target that 4,000 people, we are obviously going to hire that part of them and in other categories and realigned where we need to go for growth. So, Tal, that's a blunt question. My key takeaway is I am real pleased with our momentum in the market it just is not growing as fast as we need. And there are enough inconsistencies in the market we think not to remain agile and flexible to be able to grow for our growth markets quickly putting the resources behind that is needed. This is what we strongly believe we will do as a company."
Ben Reitzes - Barclays Capital
"Could you give a little more detail on this workforce rebalancing, when you're going to see the savings and how does that play out as we go throughout the year."
"We're obviously not going to discuss where this is going to occur in timing. We're just now getting our communication put there, there are our employees at the time of this call is going on we will spend time with our employees and spend time talking with them on these key items. So we're not going to share any detail now or in the near term future which geographies are going to be affected at which level. So, within that framework may be a clarification on the write-downs and why the write-downs."
"So, I think Ben to get your question and correct me if it's not addressing the question directly. I think you asked about as far as the savings going forward associated with the workforce reduction. One of the things that I think it's important to know here, is that what we're talking about is a workforce rebalancing. And so, we're looking at the areas of most focused for us from an innovation standpoint as we've talked about data center cloud, security, software and services as well as video, those are the areas that we are looking to continue to invest in. And as we go through this and focusing that we were making some trade-offs and that's what we are talking about and we expect to continue to drive.
"This workforce rebalancing allows us to position the investment for growth as well as John mentioned before continue to drive operational efficiencies in line with many of the things that we have had underway and improving over the last two years.
"The timing is purely dependent upon treating our employees fairly as you would expect us to do and also local rules and regulations and laws by country."
"I apologize but I wanted to clarify this one more time on the workforce rebalancing is that a net reduction of 4,000 people or again are you basically re-allocating and moving folks from one organization to the other?"
"Yeah the first part of the question is obviously a combination it's a workforce realignment and rebalancing, we need expenses back in-line with revenue growth, granted all for conservative number we hope and believe overtime but we've got to move this quickly and this is where we can't free up the headcount through attrition or normal means to move it over and then Gary and the rest of the team we're completely (inaudible) we got a speed time to market, small teams moving much faster and we have got to take a lot of this structure out mid-level management in terms of the opportunity and get moving quicker overall.
"Last quarter I described a continued slow recovery and I haven't seen anything to suggest that this dynamic will change in the short term but this recovery is more mixed and inconsistent than the others I've seen.
"We're committed to our long term financial model including driving profitable revenue growth of 5% to 7% and in this item we as leaders must continue to see rebalance our resources to indepth into opportunities, in my opinion we're managing our opportunities and our business better than we have ever have and our customers and shareholders are seeing the benefits."
"Is it possible that growth can actually turn negative and follow the trends in your backlog, or should we rather see it as the actions you are taking today more related to active portfolio pruning and just cutting declining businesses before they actually get worse?"
"Again, the actions we are taking today, the first goal is all around realigning resources. And so it's about a growth objective goal of putting resources where the growth is going to be, but if you are not going to be able to increase headcount, by definition you have to move them. Some of them have the talent to move over. Candidly, some of them were going to have to hire with the given expertise. Second area on rebalancing the resource, we got to take out a middle of a management in terms of this just not a large enough span of control, we improved from what 5.9 to about 6.9 in the last two years, but that number needs to be much higher. And this is the time where we need to get after span and layering. What I am really after there is speed of decisions but more importantly, speed of implementation. Even when you push things down from the top, it can take longer than it should in this new environment which is moving at a much faster pace. And that's where we really enjoy it.
"Nice way of saying even in this environment which is very mixed, very comfortable about our momentum, it's just not fast enough. And I am not going to let us miss a window of opportunity, which could get this company into trouble."
"John I wanted to ask about strength in U.S. enterprise and commercial. What the driver there is versus what you're seeing in emerging markets in Asia. Is the divergence mostly macroeconomic or is there something else you can point to as a contributor?"
"You will see us selectively add sales reps and SEs around the world, that goes back to rebalancing probably to the tune of 400 people in terms of sales reps and SEs to really go after these opportunities. It's our fuel for the market.
"So, when you talk about workforce rebalancing more than two-thirds the reason for that is they are aligned to move very fast on new opportunities and get our mid-level management back to a number that will support our growth objectives as we said."
This Wednesday, August 14, 2013 Cisco will webcast its Q4 and FY2013 earnings conference call and if a new unconfirmed rumor is true, it may possibly announce the layoff of 6,000 Cisco employees in a "limited restructuring."
Unfortunately for Cisco employees, Wall Street loves to drive up the price of any stock that's spilling employee blood!
Meanwhile, there's only one person I can think of that would be able to confirm this new rumor:
Roxane Marenberg
Cisco's Vice President of Compliance Systems and Employee Relations
Telephone: 408-527-1861
