Cisco to cut workforce by 15 percent, sell factory

NEW YORK/SAN FRANCISCO,  (Reuters) – Cisco Systems  plans to cut 15 percent of its jobs and sell a factory as part  of a plan to cut annual expenses by $1 billion as the network  equipment maker tries to revive its fortunes.

The cuts are deeper than what financial analysts expected.  The company said on Monday that it will cut 11,500 jobs,  compared with the several thousand that analysts predicted. The  cuts come after Cisco’s chief executive John Chambers said in  April that the company lost its way.

The company had 73,408 employees as of the end of the last  quarter, a spokeswoman said. Cisco will transfer 5,000 to  contract manufacturer Foxconn which will buy a Cisco plant in  Juarez, Mexico. Of the other 6,500 who are leaving, 2,100 will  get early retirement.

“This is a net positive for the company and for investors,”  said Morningstar analyst Grady Burkett.

It is also one half of a bigger blow dealt to U.S.  companies on Monday. The announcement comes on the same day  that Borders Group Inc, the second-largest U.S. bookstore  chain, canceled its bankruptcy auction plans and said it would  close for good. Nearly 11,000 people will lose their jobs.

Cisco said in May that it would reorganize the company,  which has been losing ground in the network equipment  business.

“We still need clarity around what different businesses the  cuts are coming from, but Cisco has been very vocal about the  fact that they are refocusing on their core businesses such as  data center, switching and routing,” Burkett said.

The job cuts will result in pre-tax restructuring charges  as high as $1.3 billion over several quarters.

Cisco expects to incur about $750 million of the charges in  the fourth quarter of its fiscal year 2011, including $500  million for the early retirement program. It did not say how  close the cutbacks would bring it toward its goal of reducing  annual costs by $1 billion.

About 15 percent of Cisco executives at the level of vice  president and higher will lose their jobs too.

Cisco will notify U.S. and Canada-based employees who are  losing their jobs in the first week of August. The layoffs in  other countries will take place later than this in compliance  with local laws and regulations, Cisco said.

The sale of the Juarez factory, which makes television  set-top boxes, is in line with company strategy, said Cisco  spokeswoman Karen Tillman. Cisco outsources about 90 percent of  its manufacturing to contract manufacturers.

Foxconn, whose flagship unit is Taiwan’s Hon Hai Precision  Industries, is best known for being a contract manufacturer of  Apple Inc iPhones and iPads. It also makes computer gadgets for  other companies such as Hewlett Packard and Dell.

The manufacturer, which employs close to a million workers  in China, made headlines last year after reports emerged about  poor working conditions at factories in southern China, which  critics say may have helped drive several employees to  suicide.

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