Daily Archives: July 10, 2009

Cisco Refutes Report of Layoffs

Cisco is denying the veracity of a report by Thomas Weisel Partners earlier today suggesting that the networking giant was paring 1,5000 to 2,0000 jobs.

Not true, says Cisco. Well, sort of.

Says Cisco spokeswoman Kirsten Weeks:

“The report today gives the impression that Cisco is announcing new head count reductions. The head count reductions referenced in the report were announced in a conference call in February.”

Weeks said Cisco has asked Thomas Wiesel to issue a clarification, which is allegedly forthcoming.

Just to show these Cisco spokespeople are organized and tend to read from the same script, Cisco’s Terry Alberstein made a similar point, suggesting that Thomas Weisel analyst Hasan Imam must have been referring to plans for job cuts of between 1,500 and 2,000 that Cisco announced during its quarterly conference call in February. Those cuts are still being made, according to Alberstein.

Neither Weeks nor Albertstein sought to contradict commentary from the Thomas Weisel analyst that was more favorable to Cisco. For example, Imam wrote that Cisco’s current quarter is tracking well, that revenue is likely to surpass consensus estimates, and that Cisco is taking share from Juniper Networks in the router market.

So, just to summarize, Cisco has not announced new staff cuts, but it continues to get rid of employees associated with a previous layoff announcement.

If you’re one of the employees being shown the door, it’s a fine distinction. The subjectivity of perspective, as always, counts for a lot.

3Com in World of Hurt Without Huawei

For years, 3Com’s H3C business unit has ridden on the coattails of Huawei Technologies Co. Ltd., tapping the Chinese networking vendor’s contacts and customer relationships for all they were worth — which turned out to be a lot.

Almost three years ago, however, 3Com and Huawei officially went their separate ways, with 3Com assuming control of H3C when it bought Huawei’s stake in the erstwhile joint venture. After the formal split, H3C continued to benefit from its relationship with Huawei, which agreed to a non-compete clause that precluded it from selling its own products — or those obtained from a third-party vendor — in place of the H3C gear.

Now, however, the non-compete period has long expired. Huawei is aggressively moving away from selling H3C gear, looking to sell its own products whenever possible. 3Com revenue derived from Huawei is destined to fall precipitously, with the decline having begun already.

Reporting its latest quarterly results, 3Com said Huawei accounted for $230 million, or 17 percent, of revenue for the year ended May 29. Sales to Huawei will fall to $50 million to $100 million this year, according to 3Com. My guess is that the Huawei contribution will be even smaller than that.

Jay Zager, 3Com’s CFO, knows what’s coming:

“When the non-compete clause expired, the question was always when they would produce their own products. It didn’t happen in 2009, when we anticipated it would. We expect two years’ of reduction coming in the next two or three quarters.”

That obviously represents a problem for 3Com. What makes it worse is that 3Com will not be able to compensate for the loss of Huawei business in China, where it is attempting to build its own channels and customer base; nor in Europe or North America, especially the latter, where 3Com’s name has been tarnished severely by its historical cut-and-run lack of commitment to enterprise customers and markets.

3Com has done a masterful job with PR earlier this year, driving up its stock with a narrative about its comeback as an end-to-end purveyor of networking gear capable of taking share from an allegedly distracted and vulnerable Cisco Systems, longtime hegemonic power in enterprise networking.

Indeed, Cisco is heading off in many directions, and it might be exposed to other players, but HP, with its ProCurve gear, looks set to pick up whatever marbles slip from Cisco’s grasp. IBM, thanks to OEM deals with Juniper Networks and Brocade Communications, also is well placed to take some business — and don’t be surprised if IBM doesn’t acquire Juniper or Brocade at some point.

Both HP and Cisco see the opportunity of data-center consolidation — servers, storage, networks, the whole shooting match — aided and abetted by virtualization. IBM sees it, too, but it hasn’t yet committed to direct ownership of a networking business unit, perhaps still reeling from the field-sales hangover that resulted from its former addiction to Cisco as a networking partner.

Nevertheless, the 3Com marketing story was good. It had just enough plausibility to turn analysts’ and invesetors’ heads. Moreover, the story diverted attention from 3Com’s own problems with diminishing Huawei-derived revenue. During the marketing push, 3Com shares surged, hitting a 52-week high in early June. Some deluded souls even thought the company might be acquired at a juicy premium.

Those people should have followed the sage aphorism of Friedrich Nietzsche, presumably coined when he was not afflicted by syphilis:

Hope in reality is the worst of all evils because it prolongs the torment of man.

Torment for 3Com shareholders might last for a while, too. I do not see how 3Com can extricate itself from the conundrum of having to generate significantly higher revenue from its non-Huawei engagements. 3Com is in a difficult bind, one that it readily acknowledges.

Thomas Weisel Reports Cisco Layoffs

Cisco has yet to respond, but research analysts at Thomas Weisel Partners report that the rumors of layoffs at the network behemoth are true.

If Thomas Weisel is correct, Cisco will slash as many as 2,000 jobs to reduce operating expenses during the continuing global recession, which has caused the company’s customers to reduce or defer expenditures.

Cisco’s layoffs would reduce operating expenses by $200 million to $250 million a year, part of the company’s broader goal to cut annual costs by $1 billion, according to Thomas Weisel.

This news, particularly as it suggests the worldwide economic downturn continues to eat into the revenue and profitability of technology bellwethers, could lead to a renewed chill on technology stocks as the second-quarter earnings season begins.