GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Cisco: Restructuring Program For Future Benefit

August 27, 2014 | About:



As a part of the restructuring program, Cisco (CSCO) plans to cut down its manpower by almost 8%. Cisco said that it will lay off up to 6,000 laborers, as a feature of a rebuilding. This step is taken by the company as a balancing act where it stays more focused into the areas that are more growth oriented and keeping the net headcount year-over-year the same as in the past. Cisco's aggregate headcount is up in the course of recent years by around 8,000 individuals.

Cisco has not determined which sort of occupations it will cut. Then again, it can be believed that the employment cuts will probably be focused among sales and marketing staff in previous development markets where sales impetus is fading, incorporating in parts of Asia and Eastern Europe. Cisco experiences exceptional rivalry in China from Huawei Technologies, China's greatest producer of network gears. As I would see it, the arranged layoff ought not have an unfavorable impact on Cisco's stock cost since the organization keeps on creating new jobs in new growth-oriented areas, including programming, security and server farm, to keep up its leadership position globally.

Late workforce decreases in huge numbers may have shown that Cisco is making some vital moves to reallocate assets far from its hardware business of the past and not just actualizing an expense-cutting measure in the midst of its absence of revenue growth. Cisco's net aggregate headcount has really expanded likely in light of enlisting in other potential development regions. Most unmistakably, server farm and virtualization has turned into Cisco's extra IT construction modeling past its routine product line that comprises hardware networks and security equipments. Actually, a ton of Cisco's solutions, services and programming now go as an inseparable unit with its own particular and other sellers' network equipments to help upgrade for an optimum hardware solution and adaptability, permitting clients to expand their IT operation productivity and attain higher worth from IT ventures.

SDN posing headwind

The SDN for network equipment may have not been an inviting business improvement for Cisco and other brand-name creators of network equipments. SDN could basically overturn Cisco's well-known hardware network gear business. The SDN architecture which are now widely embraced by are less hardware dependant this has disturbed Cisco’s hardware business. This has effectively brought on Cisco's sales to wind up stagnant for as far back as three years. DN is also more economical as compared to hardware networks equipment with wider flexibility and low maintenance.

Major structural changes should be incorporated by Cisco to overcome the commotion in its conventional network equipment business, mainly the product profile. There'll be fewer benefits in making and selling conventional proprietary network gears until and unless it is loaded with high margin networking software. Consequently, we may expect a completely revamped Cisco’s product profile. Cisco will look more like an organization offering a bundled package comprised of network solution, software and services, a total solutions provide

Strong tailwind

Cisco’s IoE coupled with its healthcare will be creating new waves for the high tech hospitals and industries in the next few years.

The market size for IoE (Internet of Everything) is anticipated to arrive at $19 trillion in the next few years. Cisco stays focused on this business and foresees gaining a significant market share of this business to impact its revenue growth. IoE is a raw niche market and not only industries but various hospitals will also adapt to IoE to increase productivity in a secured network environment. Cisco's IoE coupled with its healthcare system will be making new waves for the innovative doctor's facilities and commercial ventures in the next few years.

Tbe market for wireless solutions in health care is anticipated to reach $1.7 billion in 2014. Cisco’s focus on the health care and wellness market will certainly offset the decline and will be an impetus for growth of its products sales and services in future. By the end of year 2015, it is anticipated that 500 million people will be using wireless health and wellness applications. This is where Cisco’s networks and security equipment will provide impetus in revenue growth and leverage the bottom line.

Furthermore, Cisco and Allscripts provide Electronic Health Records integration. This synergistic Cisco-Allscripts tie up will be beneficial for both Allsripts & Cisco to achieve deeper market penetrations.

Cisco is focused on the developing market of cyber security and network solutions. This is exemplified by Cisco’s procurement of SourceFire for $2.7 billion. This acquisition will further provide a stronger cyber security portfolio for Cisco.

Healthy payouts

Cisco has always been known to keep the investors smiling with its repurchase programs and dividends payouts; it has been persistent with dividends since 2011. The forward yearly dividend yield is really high at 3.11%, and the payout ratio stands strong at 45.9%. Considering the last three years, the yearly dividend gain has reached 81.7%; this again is revealing to its investors.

On August 26, 2014, Cisco proclaimed that its board of directors announced a quarterly dividend of $0.19 to be paid on October 22, 2014 to all shareholders. Cisco's past quarterly dividend of $0.19 was paid on July 23, 2014. Cisco returned a record $13.3 billion to shareholders this fiscal year through share buybacks and dividends. Since the company generates lots of cash and the payout ratio is not excessive, there is a good chance that the company will continue to raise its dividend payment.


Cisco may be confronting a harsh way with its present income streams; however investors ought to dependably consider that the point of convergence of Cisco has been the various growth markets and is known to adapt to this by various vertical integration and enriching its product profile.

Much to the delight of investors, CSCO's stock has been doing performing splendidly in the current year. This year, CSCO's stock has picked up 8.9%, while the S&P 500 list has climbed 5.8%. By the by, thinking of it as' great valuation measurements and robust profit development prospects, CSCO's stock, as I would like to think, has a lot of room to climb.

Rating: 3.0/5 (2 votes)



Pravchaw premium member - 2 weeks ago

I did not know Cisco employed "laborers". To me a laborer would be "A person doing unskilled manual work for wages."

Please leave your comment:

Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial