Cisco Systems, Inc. (NASDAQ:CSCO) laid off about 500 employees this week in a “limited restructuring,” according to Network World. These layoffs come as Cisco looks to reinvent itself as a cloud-computing, software-centric company instead of a computer networking equipment manufacturer. Last year, Cisco CEO John Chambers outlined a plan to double its software revenue to $12 billion and increase its service revenue.
However, the company has been trying to do that for years now. Actually executing the plan is the problem, especially in the fast-moving world of computer networking solutions that have gone increasingly cloud-based and eliminated the need for many businesses to invest in the complex networking infrastructure Cisco designs and produces.
According to Network World, “Sources say officials involved in Cisco’s alliance with EMC and other data center business development initiatives have been affected. Cisco would not confirm that.” As Cisco tries to grab a slice of the cloud-computing pie, it will continue to butt heads with former industry allies. Companies that used to rely on Cisco’s networking technology to power their software solutions are increasingly becoming competitors that develop software that eliminates the need for some of Cisco’s hardware.
Cisco’s stock was recently downgraded to “Underperform” by FBR Capital and FBR
“expects a more than 40% reduction in switching and routing ports in service provider networks over the next 18 to 36 months,” according to Network World.
This month, Fortune quoted Cisco’s president of development and sales–Robert Lloyd–saying, “We’re seeing a lot more software coming into that [collaboration technology] environment, and the market is turning towards endpoints being any devices — my iPad, my Samsung Galaxy S3, my TV screen. Our model will turn more to software as well as increasing the number of endpoints and the cloud-based delivery of enterprise communications. The other transition is the cloud and people buying things as a service. As a result our gross numbers are down, but in most of these categories our market share is up, which means the market’s kind of shifting.”
Do not count Cisco out of the networking industry. Its innovations in physical networking technologies can be turned into software-based networking technology innovations. The company just needs to figure out its position in the market and how to execute its plans.