Cisco joins layoff frenzy

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Published Saturday, March 10, 2001, in the San Jose Mercury News SLOWDOWN IN THE VALLEY

Cisco joins layoff frenzy The stock market is battered as high-technology job cutbacks spread After years of sizzling growth, San Jose's largest corporate employer will eliminate as many as 8,000 jobs; cutbacks appear likely to slow plans for Coyote Valley campus.

BY JENNIFER FILES Mercury News

In a dramatic sign of the widening economic slowdown, Cisco Systems, San Jose's largest corporate employer and a pillar of the high-tech economy, said Friday that it would cut as many as 8,000 jobs through a combination of layoffs and voluntary departures.

The layoffs will mark the first time that Cisco, which has grown at a sizzling pace for years, has cut jobs for economic reasons. The cutbacks appear likely to slow the pace of Cisco's planned $1.3 billion headquarters campus in Coyote Valley.

The networking giant is still highly profitable and in relatively good shape, compared to competitors in the communications equipment business.

Within the next four months, however, between 3,000 and 5,000 -- or 6.8 percent to 11.4 percent -- of Cisco's 44,000 employees will lose their jobs.

An additional 2,500 to 3,000 temporary and contract workers will be let go. Cisco currently employs 4,000 temporary workers and did not say how many contractors it uses, or how many of the cuts among permanent employees would be outright layoffs.

At least 800 of the cuts would take place in the Bay Area, where Cisco employs 16,000.

The severity of the economic downturn was the main factor behind the job cuts, said a visibly weary John Chambers, Cisco's chief executive, in an interview Friday afternoon. ``I do firmly believe you deal with the world the way it is, not the way you wish it was.''

``We're taking these steps because of the continuing slowdown in the U.S. economy and initial signs of a slowdown expanding to other parts of the world,'' Chambers said. ``We also now believe that this slowdown in capital spending could extend beyond two quarters.''

Some employees expressed shock that the company, whose workforce has grown at a stunning 40 percent a year since 1996, would now cut jobs. ``Chambers has said he would never lay off anyone,'' said one employee, interviewed outside the company's huge San Jose campus. ``Never say never, I guess.''

Cisco joins a growing list of major Silicon Valley employers, including Intel, Hewlett-Packard, 3Com and JDS Uniphase, that have announced workforce reductions in recent weeks.

Makers of communications equipment have been among the hardest hit as the economy slows and the phone companies and businesses who buy their equipment dramatically scale back capital spending.

Several of Cisco's rivals and suppliers announced layoffs recently, including Nortel Networks and Lucent Technologies, which plan to slash 10,000 jobs each.

A different story

But Cisco has always been different. Until recently, its growth had been one of the stunning successes of Silicon Valley's economy. Cisco more than doubled its workforce in 18 months -- hiring about 23,000 -- before its customers began cutting back purchases in the past few months. Cisco's company policy is to fire up to 5 percent of its poorest-performing workers each year, but it has not always done that. And when it has, hiring has more than eclipsed the cutbacks.

``When you do a layoff at a company that has been the most successful in history, it is traumatic, for everyone involved,'' said Chambers. ``Having said this, it's truly a learning experience, and it's exactly what your parents meant when they said it's a learning experience. It's going to last longer than you want, and it's going to be painful.''

Cisco shares, already down 70 percent in the past 12 months, fell $2.19 to $20.63 Friday on Nasdaq after the announcement. During the day, they hit a two-year low of $20.31.

Analysts said the fall might continue.

``Cisco is still, in my opinion, overvalued. It will get to the point that it becomes ridiculously undervalued,'' said Marvin Roffman, president of Roffman Miller Associates in Philadelphia.

Sudden slowdown

Cisco's torrid growth and sudden slowdown is representative of Silicon Valley's economy. ``A year ago, all I was hearing was the Old Economy and the New Economy -- the New Economy is the new ballgame and they're going to be able to get through slow economic times unscathed. Those guys are going to have egg all over their faces, and you haven't seen the end of this yet.''

Cisco said in February that its revenue in the current fiscal quarter, which ends in April, may fall as much as 5 percent from the last quarter. In 11 years as a publicly traded company, Cisco's revenue has never dropped in back-to-back quarters.

Regular performance-related cuts -- which Cisco obliquely describes as ``normal involuntary attrition'' -- account for about 2,300 of the 3,000 to 5,000 planned cuts among Cisco's regular employees. The remaining cuts would be made through layoffs as Cisco combines some jobs and eliminates others, and voluntary attrition.

All employees to be dropped will be notified by April, and workers who are laid off for reasons not related to their performance will receive six months of severance pay. Some will essentially be furloughed to the non-profit sector -- Cisco will pay one-third of their salary, and they are expected to be offered jobs back at Cisco at the end of the year.

Among other Silicon Valley job cuts announced in recent weeks:

5,000 at chip maker Intel, mainly through attrition, because the chip maker's first-quarter sales will fall sharply below Wall Street's already-lowered expectations.

3,000 at JDS Uniphase, another communications equipment company, because customers including Nortel Networks were slashing their purchasing budgets.

1,200 at 3Com, which cited the economic slowdown and turmoil in the communications industry

1,700 at Hewlett-Packard, as the computer and printer manufacturer restructures its business

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-- Martin Thompson (mthom1927@aol.com), March 10, 2001


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