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Cisco announces 4,000 to be laid off, and no mention of collaboration

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Cisco has announced plans to layoff about 5% of its workforce, following a conference call with analysts regarding the quarter that will end in October. While recent results showed sales up 6%, it seems like there is a real headwind developing for Cisco in its traditional businesses.

In a discussion with Arik Hesseldahl of AllThingsD, Cisco’s CEO John Chambers said,

“The primary reason is that as a company we’re rebalancing our work force to meet the opportunities,” he said. It’s not a matter of cutting expenses company-wide, but cutting here and adding there, where the business is generally stronger. It’s the kind of realignment that would normally happen over the course of two years naturally via attrition and retirements and other changes, he told me, but two years isn’t fast enough, so a one-time cut is necessary.

As usual, Cisco is a bit of a canary in the coalmine indicating the health of the global economy, often well ahead of the point at which it’s apparent to other companies. This quarter the data is going in a lot of confusing directions, Chambers said. “We’re happy with our public sector business in the U.S., but the enterprise business in Europe is sliding, and business in Asia Pacific was weak.” Also, U.S. commercial and enterprise sales were strong, but of the top five customers only two grew in a meaningful way, he said. “The data is very inconsistent.”

Patrick Moorhead of MoorInsights and Strategy suggested that Cisco is smacking into a shift in the business world:

“Massive, scale-out data centers aren’t buying into Cisco’s heavy-duty management feature sets, and are instead buying stripped-down gear out of Asia at much lower prices. Enterprises are also increasingly looking for more open or converged solutions, areas where Cisco is disadvantaged compared to Hewlett-Packard and IBM.”

These changes are also hitting HP and IBM (see IBM’s numbers show the shifting economics of business IT, and IBM’s future in doubt, according to Credit Suisse) as companies are migrating to cloud solution managed by external cloud services that rely on no name, low-cost servers. The company has been acquiring a lot of software companies with products targeting cloud computing and security, with 10 since November 2012: Cloupia, Meraki, Cariden, Intucell, Cognitive Security, SolveDirect, Ubiquisys, JouleX, Composite Software, and Sourcefire.

Back in December, Chambers set a transition plan for the company called “Tomorrow starts here”, moving away from selling networking gear toward a sort of smart cities initiative (see Cisco CEO says he will remake the company before retiring):

Quentin Hardy, Planning His Legacy, Cisco Chief Maps An Expansion

Cisco, the chairman and chief executive says, will shift toward customers in government and large businesses, handling projects like designing and managing systems for efficient traffic and clean water across entire cities. Cisco’s plan is to create networks of sensors and data analysis systems, working closely with government officials and civil engineering companies. And it will work with companies to set up efficient mining, manufacturing and distribution systems.

“It’s a $4 trillion market,” he said. “The days of boxes are over.”

But this transition seems to be getting bogged down. Chambers says that there is too much middle management at Cisco, but it looks to me like a barrage of acquisitions has led to a disordered mess of overlapping functions. If every one of the ten recent acquisitions has its own marketing, sales, finance, HR, and engineering teams it is going take more than saying “Tomorrow starts here” to bridge a dinosaur like Cisco into the future.

This also calls into question Chamber’s plans for collaboration software. The demand for telepresence solutions — with room-sized teleconferencing capabilities — is falling like a rock, with perhaps 2007 as its peak. The auxiliary solutions that Cisco has developed or acquired, like Cisco Webex Collaboration (formerly Cisco Quad) and Jabber, are marginal players in the contemporary business work management marketplace. Note that the collaboration division goes unmentioned in any of the recent press releases about the company’s financial results or forward-looking statements. That alone suggests that things are not doing so well in that area, since the company has touted every bit of good news it had available.