Will Cisco Job Cuts Hurt Partners?

Channelweb.com confirmed on Wednesday networking

However, partners said they are waiting to hear if some of their key contacts within the company have been put on the chopping block before they gauge the immediate impact of the job eliminations.

"My biggest concern immediately is the relationships we built and if those people will survive the cuts," said Adam Steinhoff, president and CEO of Steinhoff Consulting, a North Palm Beach, Fla.-based Cisco partner. "You spend years building these relationships, and the people are removed with one swing of the ax."

According to Steinhoff, as long as his local contacts -- account managers and reps -- are safe, it should be business as usual at Steinhoff Consulting, he said.

On Wednesday, Cisco confirmed that its first round of job cuts had begun as the company slashed a number of positions in the U.S. and abroad, 250 of which were in the San Jose, Calif., headquarters. Cisco would not say exactly how many jobs were lost and stopped short of calling the eliminations layoffs, opting to call it a "limited restructuring."

Sources told Channelweb.com that some of the affected employees, who started being notified on Tuesday, could be redeployed to other areas within Cisco. Those that are not redeployed will receive a separation package that includes severance pay and job-transition assistance.

In a statement, Cisco said: "Cisco is constantly evaluating its business priorities, resources and overall employee alignment as part of our business management process. This limited restructuring is part of our ongoing, targeted realignment of resources and was previously discussed on our fiscal second quarter 2009 earnings call."

On Cisco's Feb. 4 earnings call for the second fiscal quarter, CEO John Chambers said Cisco could slash as many as 2,000 jobs as it realigns and restructures. Those cuts come after 1,000 positions were shed in fiscal 2008 and the first fiscal quarter of 2009. So far, sources said, the number of positions cut has not reached the number anticipated, but more could come soon.

"In fiscal year 2008 and the first quarter in 2009, we realigned and restructured approximately 1,000 jobs of a global workforce of 67,000 employees," Chambers said on the call. "With the speed that we are moving on so many fronts, we will continue this normal process, which in the near term could result in the reduction of 1,500 to 2,000 jobs. This is something we will continue to do both in good and challenging times, but thought it was important to provide this level of detail, especially to our employee family, during these uncertain times."

Daniel Holt, CEO of Heit, a Fort Collins, Colo.-based Cisco partner, said so far, the job cuts haven't directly affected his relationship with Cisco, noting that it appears Cisco's channel support team remains intact.

"None of the people that we work closely with got cut," he said. "I'm glad [the cuts] weren't huge. But we'll see how it all plays out."

More concerning, Holt said, is Cisco's bid to chop $1 billion in operating expenses throughout fiscal 2009. Holt said he fears those cost reductions could hamper marketing efforts, which is the lifeblood of many partners.

"The part that really impacts us is when these vendors stop marketing," he said. "When that valve shuts off, it shuts off revenue. My biggest concern is when marketing is impacted."

Cisco has said that this week's job cuts are separate from the $1 billion cost-cutting initiative, which includes resource realignment, a hiring freeze and restrictions on corporate travel.

Steinhoff said the cost-cutting initiative and the job eliminations came as no surprise as companies continue to try and navigate through a weakening economy. Both Holt and Steinhoff said Cisco's job cuts should not affect its technological leadership.

"This shows that they're a smart company," Steinhoff said. "Companies that haven't made any cuts aren't reacting fast enough. If they're not doing it, they're not in step with the economy."

Holt added that despite the cuts, he expects Cisco to thrive and emerge from the current recession on solid footing.

"Chambers is an extraordinary leader," Holt said. "He's still going to have that company rocking and rolling."

Cisco's job cuts this week come after normally resilient Cisco's revenue dropped 7.5 percent year over year to $9.1 billion for the second quarter. Coming off the down quarter, Chambers said Cisco expects third fiscal quarter revenue to drop between 15 and 20 percent year over year, prompting him to call the current economic state "The biggest challenge of our lifetime."

Despite the challenging economic time, Chambers has refused to refer to the job cuts as layoffs.

"In very direct terms, we are not going to consider a layoff at this point in time," Chambers said. "While there are no guarantees, we think the odds are reasonable that if we execute effectively as outlined on this call, we may be able to avoid large downsizing events."