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.