back to article Switchzilla? More like Ditch-your-staff-zilla: Cisco back at the layoffs as revenues shrink

Cisco has begun a new round of job cuts as the networking giant's traditional hardware business faces slowing sales. "This is part of an ongoing process of aligning our investments and resources to meet the evolving needs of our customers and partners," the company said in a nebulous statement. It declined to say how many …

  1. 2Blockchainz

    Silicon valley

    What an efficient way to resolve the quarrel between the homeless and tech wealthy in Silicon Valley. Foreclose on the sacked tech workers and make everyone homeless! Ah, the workers' paradise.

  2. a_yank_lurker Silver badge

    Typical Manglement

    Silly Valley manglement has never understood basic economics and market maturation. At some point all markets become mature where sales growth slows and is mostly driven by economic and population growth (could be negative, see Toys-R-US, RIP) as well as raiding competitors. They have been in a la-la land not understanding that to raid competitors you must be better than your competitors at a competitive price. Networks will grow but their growth will not be particularly rapid as most people have enough gear and capacity that new gear is not needed until the old gear dies.

    1. Anonymous Coward
      IT Angle

      Re: Typical Manglement

      Also, you have had the increasing commoditization of networking gear, in favor of the software driving he gear. And of course Cisco is mostly known as a company that sells gear. This is the same tech megatrend that has previously commoditized computing and storage gear.

      1. jon909

        Re: Typical Manglement

        Yeah, I was about to mention that a lot of what CISCO do now are commodity items at non-commodity prices.

    2. martinusher Silver badge

      Re: Typical Manglement

      (Toyd-R-Us got Hedge Funded -- leveragedf buyout, loaded with debt and then raided for every cent that could be wrung from it.)

      This story needs to be read in conjunction with all those stories about how Huawei's networking kit is a Threat to National Security. In fact its got so bad that the politicans in DC are about to throw $1Billion at companies to replace their Huawei kit -- surely there's a business opportunity there for the financial wizards? The idea of maybe maintaining investments so that they could just sell competetitive kit at prices that make a modest profit just doesn't click with the typical US corporation -- they want fat profits now and for ever and they don't want to work for it. Its just that eventually a Huawei will come along and take their market off them -- they'll retreat into software and 'services' but eventually the market will evaporate and they'll be left lobbying the government for protection (tariffs, entity lists, bald faced lies, whatever works.....).

  3. cornetman Silver badge

    Perhaps Trump could help Cisco out by threatening other countries against using gear from their competitors.

    He could perhaps make nebulous association with foreign government spying to introduce FUD to the mix.

    I'm sure that would be a winning strategy.

  4. Anonymous Coward
    Anonymous Coward

    Majority of profit from expensive service contracts

    Cisco historically has made a lot of its money from very expensive service contracts.

    The commoditisation of the market is driving down the price of kit.

    It therefore becomes harder to justify such high service contracts on kit that costs so much less. Arguments can and will be made that service costs at most must be a small percentage of the price of the kit, else it’s cheaper to simply purchase faulty kit themselves.

    The nasty thing about all of this is that it affects all existing service contracts when they come up for renewal based on the current price of the kit.

    1. Anonymous Coward
      Anonymous Coward

      Re: Majority of profit from expensive service contracts

      "Cisco historically has made a lot of its money from very expensive service contracts."

      OK...I would challenge that. While they may make more than other vendors on service contracts, I would estimate a peak attach rate for Smartnet or similar contracts of 50% and they typically amount to less than 10% of the equipment value once discounts are included and it is not a cheap service to provide (i.e. complex technical support combined with fast logistics). It only looks like Cisco make a lot of revenue from support contracts because Cisco make a lot of revenue. And sometimes Cisco support is actually reseller support at the same cost but significantly reduced capabilities.

      Why are Cisco suffering? On the data side, their traditional markets have been enterprises and telcos. As enterprises have moved away from traditional data centres AND virtualised, the required equipment and scalability has dropped dramatically. Gone are the days where every enterrprise DC was built around large Cisco or Juniper switches because enterprises rarely need that port density now.

      As cloud providers mostly roll their own kit or use white label kit (except for Azure using Arista), this hurts Cisco twice - reduced volume and a large portion of their market disappearing. Add in increased competition and pretty much everyone using the same Broadcom/Intel platform for 10Gbps+ speeds (the commoditisation you mention). Outside of the data centre, wifi and changing office requirements (hot desking, mobile voice, more flexible working) have meant switch port sales are largely flat for the last 10 years. No growth means those fat margins have disappeared - Cisco used to boast it sold kit at a 65%+ markup but typically enterprises will get 50%+ discounts on RRP and even more on big deals.

      On the voice side, Cisco and telco's have been hurt badly by how fast traditional voice has disappeared in favour of mobile voice. And in-spite of what many readers think, Cisco's presence in mobile isn't strong - they provide routers and switches for moving traffic, but they aren't high margin items when you are competing against 3-5 other vendors with similar capabilities for deployment contracts. And they don't provide the software for monitoring/managing mobile networks or the hardware for the RAN's (routers/switches aside - .

      The reality for many of the traditional voice/data communications companies is that they have to ditch their legacy portfolios asap if they want to keep up with Huawei. That is a VERY big change for most of these companies when your products no longer sell themselves and this applies to many traditional big name IT hardware vendors.

      Personally, supporting a multivendor network where Cisco is present in around 40% of the sites - Cisco's functionality and support can be worth it as many of their competitors don't deliver equivalent functionality. The challenge is most sites can bear 1-2 days outage or working from home while the issues are fixed. Even if the downtime is more expensive than the TCO difference of the different vendors equipment.

      1. 2Blockchainz

        Re: Majority of profit from expensive service contracts

        Take it from me...service and maintenance is a small part of the revenue, large part of the profits!

        1. Anonymous Coward
          Anonymous Coward

          Re: Majority of profit from expensive service contracts

          SmartNet fits into services which reports $12.9bn revenue in 2019 - take out professional services and hosted solutions and you are likely looking at around $5bn.

          I would guestimate annual running costs for TAC (support/bugfixes) is around $1bn, hardware replacement at $1bn (i.e. ~2.5% of hardware sales) and revenue sharing with resellers at ~$1-1.5bn leaving $1.5-$2bn for Cisco.

          While 40% margin is healthy for a hardware vendor, its below the margin for typical software vendors and below Cisco's typical margins in the healthier parts of the business.

  5. IGnatius T Foobar ! Bronze badge

    Software defined networking?

    We just looked at Cisco ACI, their software-defined networking tat, and get this: it doesn't do routing. The mighty Cisco, king of routers, cannot do routing in their SDN solution.

    1. Anonymous Coward
      Anonymous Coward

      Re: Software defined networking?

      What? I suspect you may need to do some more reading.

      While there are layer-2 switches that can run in ACI or NX-OS mode, there are also switches that support layer-3 routing. Just look for devices that can support ACI-spine functionality rather than the switches that only support ACI-leaf functionality.

      Just like the rest of the Cisco switch product range...deploy what you need, where you need it. While this may not make sense in your leaf+spine deployment, theres a lot of legacy networks that still need some form of support in an SDN world.

    2. Anonymous Coward
      Anonymous Coward

      Re: Software defined networking?

      Fail troll is fail. Are you really trying to claim VxLAN isn't routing since that's basically what ACI is, it's nothing more than fancy VxLAN with some predefined parameters that the end user can't adjust in all cases but provides plenty of customization elsewhere.ACI uses Intermediate System-to-Intermediate System for routing within the fabric along with COOP for endpoint communication and MP-BGP to export and import routing information outside and into the fabric.

  6. Torquemada_131

    Resistance is futile... Prepare to be Un-BORG'd

    There's no doubt that when faced with fiscal un-certainty, Cisco's bean counters tend to wield the man-power reduction scalpel as a first response.

    I'd also add that, staff "at risk" are commonly given advance notice and a suggestion that they should look towards finding a new role in another team in the next 6 weeks. Those with a long service record can also be given an additional two weeks.

    It's not the fairest system,... but there's a lot worse.

  7. SWCD

    Can't stand them..

    I dare say their fancy kit is required in certain places.

    From a wee guy's perspective though, we put a load of their Meraki stuff into schools (despite their licensing costs being sky-high; the schools weren't keen on using names they hadn't heard of incase the LA frowned on it, or wouldn't support it). They'd happily take the sales until one day the carpet was whipped out from under us, either we'd have to buy from a bigger seller (losing a lot of margin), or we'd have to do some training to become "authorised". In other words, "This Meraki stuff is off the ground now, thanks for the help, now naff off".

    So, Ubiquiti all the way now. An AP is the same cost as a year of license from Cisco. The number of old Meraki AP's on eBay continues to increase as others realise same - it's overpriced and Cisco can go screw themselves.

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