Category Archives: Layoffs

Tidbits: Cuts at Nokia, Rumored Cuts at Avaya

Nokia

Nokia says it will shed about 10,000 employees globally by the end of 2013 in a bid to reduce costs and streamline operations.

The company will close research-and-development centers, including one in Burnaby, British Columbia, and another in Ulm, Germany. Nokia will maintain its R&D operation in Salo, Finland, but it will close its manufacturing plant there.

Meanwhile, in an updated outlook, Nokia reported that “competitive industry dynamics” in the second quarter would hurt its smartphone sales more than originally anticipated. The company does not expect a performance improvement in the third quarter, and that dour forecast caused analysts and markets to react adversely.

Selling its bling-phone Vertu business to Swedish private-equity group EQT will help generate some cash, but, Nokia will retain a 10-percent minority stake in Vertu. Nokia probably should have said a wholesale goodbye to its bygone symbol of imperial ostentation.

Nokia might be saying goodbye to other businesses, too.  We shall see about Nokia-Siemens Networks, which I believe neither of the eponymous parties wants to own and would eagerly sell if somebody offering more than a bag of beans and fast-food discount coupons would step forward.

There’s no question that Nokia is bidding farewell to three vice presidents. Stepping down are Mary McDowell (mobile phones), Jerri DeVard (marketing), and Niklas Savander (EVP markets).

But Nokia is buying, too, shelling out an undisclosed sum for imaging company Scalado, looking to leverage that company’s technology to enhance the mobile-imaging and visualization capabilities of its Nokia Lumia smartphones.

Avaya

Meanwhile, staff reductions are rumored to be in the works at increasingly beleaguered Avaya.  Sources says a “large-scale” jobs cut is possible, with news perhaps surfacing later today, just two weeks before the end of the company’s third quarter.

Avaya’s financial results for its last quarter, as well as its limited growth profile and substantial long-term debt, suggested that hard choices were inevitable.

HP’s Latest Cuts: Will It Be Any Different This Time?

If you were to interpret this list of acquisitions by Hewlett-Packard as a past-performance chart, and focused particularly on recent transactions running from the summer of 2008 through to the present, you might reasonably conclude that HP has spent its money unwisely.

That’s particularly true if you correlate the list of transactions with the financial results that followed. Admittedly, some acquisitions have performed better than others, but arguably the worst frights in this house of M&A horrors have been delivered by the most costly buys.

M&A House of Horrors

As Exhibit A, I cite the acquisition of EDS, which cost HP nearly $14 billion. As a series of subsequent staff cuts and reorganizations illustrate, the acquisition has not gone according to plan. At least one report suggested that HP, which just announced that it will shed about 27,000 employees during the next two years, will make about half its forthcoming personnel cuts in HP Enterprise Services, constituted by what was formerly known as EDS. Rather than building on EDS, HP seems to be shrinking the asset systematically.

The 2011 acquisition of Autonomy, which cost HP nearly $11 billion, seems destined for ignominy, too. HP described its latest financial results from Autonomy as “disappointing,” and though HP says it still has high hopes for the company’s software and the revenue it might derive from it, many senior executives at Autonomy and a large number of its software developers already have decamped. There’s a reasonable likelihood that HP is putting lipstick on a slovenly pig when it tries to put the best face on its prodigious investment in Autonomy.

Taken together, HP wagered a nominal $25 billion on EDS and Autonomy. In reality, it has spent more than that when one considers the additional operational expenses involved in integrating and (mis)managing those assets.

Still Haven’t Found What They’re Looking For

Then there was the Palm acquisition, which involved HP shelling out $1.2 billion to Bono and friends. By the time the sorry Palm saga ended, nobody at HP was covered in glory. It was an unmitigated disaster, marked by strategic reversals and tactical blunders.

I also would argue that HP has not gotten full value from its 3Com purchase. HP bought 3Com for about $2.7 billion, and many expected the acquisition to help HP become a viable threat to Cisco in enterprise networking. Initially, HP made some market-share gains with 3Com in the fold, but those advances have stalled, as Cisco CEO John Chambers recently chortled.

It is baffling to many, your humble scribe included, that HP has not properly consolidated its networking assets — HP ProCurve, 3Com outside China, and H3C in China. Even to this day, the three groups do not work together as closely as they should. H3C in China apparently regards itself as an autonomous subsidiary rather than an integrated part of HP’s networking business.

Meanwhile,  HP runs two networking operating systems (NOS) across its gear. HP justifies its dual-NOS strategy by asserting that it doesn’t want to alienate its installed base of customers, but there should be a way to manage a transition toward a unified code base. There should also be a way for all the gear to be managed by the same software. In sum, there should be a way for HP to get better results from its investments in networking technologies.

Too Many Missteps

As for some of HP’s other acquisitions during the last few years, it overpaid for 3PAR in a game of strategic-bidding chicken against Dell, though it seems to have wrung some value from its relatively modest purchase of LeftHand Networks. The jury is still out on HP’s $1.5-billion acquisition of ArcSight and its security-related technologies.

One could argue that the rationales behind the acquisitions of at least some of those companies weren’t terrible, but that the execution — the integration and assimilation — is where HP comes up short. The result, however, is the same: HP has gotten poor returns on its recent M&A investments, especially those represented by the largest transactions.

The point of this post is that we have to put the latest announcement about significant employee cuts at HP into a larger context of HP’s ongoing strategic missteps. Nobody said life is fair, but nonetheless it seems clear that HP employees are paying for the sins of their corporate chieftains in the executive suites and in the company’s notoriously fractious boardroom.

Until HP decides what it wants to be when it grows up, the problems are sure to continue. This latest in a long line of employee culling will not magically restore HP’s fortunes, though the bleating of sheep-like analysts might lead you to think otherwise. (Most market analysts, and the public markets that respond to them, embrace personnel cuts at companies they cover, nominally because the staff reductions result in near-term cost savings. However, companies with bad strategies can slash their way to diminutive irrelevance.)

Different This Time? 

Two analysts refused to read from the knee-jerk script that says these latest cuts necessarily position HP for better times ahead. Baird and Co. analyst Jason Noland was troubled by the drawn-out timeframe for the latest job cuts, which he described as “disheartening” and suggested would put a “cloud over morale.” Noland showed a respect for history and a good memory, saying that it is uncertain whether these layoffs would bolster the company’s fortunes any more than previous sackings had done.

Quoting from a story first published by the San Jose Mercury News:

In June 2010, HP announced it was cutting about 9,000 positions “over a multiyear period to reinvest for future growth.” Two years earlier, it disclosed a “restructuring program” to eliminate 24,600 employees over three years. And in 2005, it said it was cutting 14,500 workers over the next year and a half.

Rot Must Stop

If you are good with sums, you’ll find that HP has announced more than 48,000 job cuts from 2005 through 2010. And now another 27,000 over the next two years. But this time, we are told, it will be different.

Noland isn’t the only analyst unmoved by that argument. Deutsche Bank analysts countered that past layoffs “have done little to improve HP’s competitive position or reduce its reliance on declining or troubled businesses.” To HP’s assertion that cost savings from these cuts would be invested in growth initiatives such as cloud computing, security technology, and data analytics, Deutsche’s analysts retorted that HP “has been restructuring for the past decade.”

Unfortunately, it hasn’t only been restructuring. HP also has been an acquisitive spendthrift, investing and operating like a drunken, peyote-slathered sailor.  The situation must change. The people who run HP need to formulate and execute a coherent strategy this time so that other stakeholders, including those who still work for the company, don’t have to pay for their sins.

Last Week’s Leavings: Avaya and HP

Update on Avaya

Pursuant to a post I wrote earlier last week on Avaya’s latest quarterly financial results and its continue travails, I’m increasingly pessimistic about the company’s prospects to deliver a happy ending (as in a successful exit) for its principal private-equity stakeholders.  There’s no growth profile, cost containment has yet to yield profitability, and the long-term debt overhang remains ominous. The company could sell its networking business, but that would only buy a modest amount of latitude.

At a company all-hands meeting last week, which I mentioned in the aforementioned post, Avaya CEO Kevin Kennedy spoke but didn’t say anything momentous, according to our sources. Those sources described the session as “disappointing,” in that little was disclosed about the company’s plans to right the ship. Kennedy also didn’t talk much about the long-delayed IPO, though he did say its timing would be determined by the company’s sponsors — which is true, but doesn’t tell us anything.

Kennedy apparently did say that the employee headcount at the company is likely to be reduced through layoffs, attrition, and “restructuring,” the last of which typically results in layoffs. He also reportedly said Avaya had too many locations, which suggests that geographic consolidation is in the cards.

HP: Layoffs will continue until morale improves

Speaking of cuts, reports that HP might be shedding a whopping eight percent of its staff are troubling. Remember, HP is a company that was headed by Mark Hurd, a CEO notorious for his operational austerity. Hurd wielded the sharp budgetary implements so exuberantly, he must have brought tears to the eyes of Chainsaw Al Dunlap, former CEO of Sunbeam, who, like Hurd, was ousted under dubious circumstances.

During Hurd’s reign at HP, spending on R&D was slashed aggressively, and it was somewhat jokingly suggested that the tightfisted CEO might insist that his employees power their offices by riding electric stationary bikes.  After the Hurd years, and the desultory and fleeting rule of Leo Apotheker, HP now appears to be getting another whopping dollop of restructuring. The groups affected will be hit hard, and one wonders how morale throughout the company will be affected. We might learn more about the extent and nature of the cuts later today.

Avaya’s Latest Results Portend Hard Choices

Those of you following the Avaya saga might want to check out the company’s latest quarterly financial results, which are available in a Form 10-Q filed with the Securities and Exchange Commission.

For Avaya backers hoping to see an IPO this year or in 2013, the results are not encouraging. In the three-month period that ended on March 31, Avaya generated revenue of $1.257 billion, with $637 million coming from product sales and $620 million from services. Those numbers were down from the correspondence quarter the previous year, when the company produced $1.39 billion in revenue, with product sales generating $757 million and services contributing $633 million. Basically, product sales were down sharply and services down slightly.

No Growth in Sight

Avaya also is seeing a weakening in channel sales. Moreover, growth from its networking products, on which the company had once pinned considerable hope, is stagnating. In the six-month period ending March 31, the company generated just $146 million from Avaya Network sales, down from $154 million in the preceding year. For the latest three-month period, concluding on the same date, networking sales were down to $64 million from $76 million last year. It is not projecting the profile of a growth engine.

Things are not much better in Avaya’s Global Communications Solutions (GCS) and Enterprise Collaboration Solutions (ECS) groups, which together account for the vast majority of the company’s product revenue. At this point, Avaya does not have a business unit on its balance sheet showing growth over the six- or three-month periods for which it filed its latest results.

Meanwhile, losses continue to mount and long-term debt remains distressingly high. Losses were down for both the three- and six-month periods reported by Avaya, but those mitigated losses were derived from persistent cost containment and cuts, which, if continued indefinitely, eventually (as in maybe now) hinder a company’s capacity to generate growth.

Interestingly, Avaya’s costs and operating expenses are down across the board, except for those attributable to “restructuring charges,” which are up markedly Avaya’s net loss for the six months ended on March 31 were $188 million as compared with $612 million last year. For the three-month period, the net loss was $162 million as compared with $432 million the previous year.

IPO Increasingly Unlikely

Although Avaya is not a public, and — company aspirations notwithstanding — does not appear to be on a trajectory to an IPO, markets reacted adversely to the financial results. Avaya bonds dropped to their lowest level in fourth months in response to the revenue decline, according to a Bloomberg report.

Avaya’s official message to stakeholders is that it will stay the course, but these results and market trends suggest a different outcome. Look for the company to explore its strategic options, perhaps considering a sale of itself in whole or in part. A sale of the floundering networking unit could buy time, but that, in and of itself, wouldn’t restore a growth profile to the company’s outlook.

Difficult choices loom for a company that has witnessed significant executive churn recently.

Talk of CEO Succession at Cisco

As Cisco has struggled to adapt to the protracted global market downturn and the “recoveryless” recovery — it’s been going on so long, perhaps we should just call it the Information-Age Depression — the company’s CEO, John Chambers, has been subject to unfamiliar criticism from investors and industry observers alike.

Then again, Cisco’s shares have stagnated for much of the last decade, leading some to contend that Chambers and his thinning bench of executive talent were long overdue for reproach.  Indeed, it’s a measure of Cisco’s great success under Chambers, especially during the hypergrowth 90s, that he was spared the scrutiny that other executives would have received under similar circumstances. Cisco’s blazing growth and industry dominance in its earlier incarnation gave Chambers and crew protective cover from criticism — until now.

Glory Days Fade

One can only feast on the glory deals for so long. Cisco still dominates enterprise networking, but its market share is receding gradually. The company hasn’t been able to find the growth it expected from Chambers’ “market adjacencies,” and it was forced to abort an ill-considered foray into the consumer space, shutting down Pure Digital Technologies and its Flip video camcorders earlier this year.

What’s more, the company’s inorganic growth-by-acquisition model, which served it so well in the 1990s and into the last decade, seems to be sputtering, with Cisco making fewer acquisitions and not batting its formerly exalted average on the ones it does make. Cisco executives who directed and executed some of its most successful acquisitions — Charlie Giancarlo and Mike Volpe among them — no longer are with the company, which might partly explain Cisco’s faltering M&A pace.

Hoisted on Its Own Petard

However, Cisco also has put itself into a box of its own devising, having parked most of cash overseas to avoid US taxation. Until that money is repatriated, whether through a “tax holiday” or otherwise, Cisco will be forced to evaluate acquisitions partly on where its money resides rather than exclusively on the basis of strategic requirements. It’s a perverse dilemma, but ultimately Cisco was the author of its own misfortune.

That’s been doubly unfortunate because Cisco had become dependent on acquisitions to provide its innovation. Years ago, competitors alleged that Cisco couldn’t innovate organically, and I also felt that accusation was harsh and unfair. Now, though, it’s difficult to contend that Cisco is providing enough value-bestowing innovation to drive top-line growth or to support its traditionally robust profit margins.

Finally, Cisco has seen scores of talented executives, and their intellectual capital, leave the company in recent years. This summer thousands of employees were shown the door. Others, some with reserves of institutional memory and hard-won experience, took early retirement.

Chambers Reportedly Leaving

Cisco has seen better days, and it’s no wonder that shareholders are demanding a change of leadership. A Reuters news item reports that John Chambers might be about to relinquish the big chair, with discussion inside and outside the company intensifying about Cisco’s CEO succession plans.

Some sources say Chambers might announce his departure imminently while others say he’ll want to leave on a high note, perhaps after an expectation-smashing quarter. Timing aside, it seems all but certain that Chambers will be gone before long.

Reviewing the Field of Candidates

That has occasioned rampant speculation about who will succeed him. Candidates have been proposed from inside and outside Cisco, and some apparently are campaigning for the job, lobbying shareholders and board members for support.

The current consensus is that Cisco will look externally for its next CEO rather than promote from within.  That view implicitly questions the depth of the executive bench strength currently at Cisco.

Potential external candidates mentioned by Reuters include former Hewlett-Packard CEO Mark Hurd and former Cisco executives Charles Giancarlo, Mike Volpi, Gary Daichendt, and James Richardson. Other industry executives cited as possible contenders include Juniper Networks Inc CEO Kevin Johnson, former McAfee CEO Dave DeWalt, and HP executive David Donatelli.

Hurd Worst Fit

Some dark-horse candidates undoubtedly will surface, too, but of those mooted by Reuters, I think Mark Hurd perhaps is the worst fit. Hurd’s specialty is operational efficiency and relentless cost-cutting. As Cisco’s latest layoffs and austerity attest, operational discipline isn’t necessarily the company’s most urgent requirement.

What Cisco really needs is somebody who knows how to identify, nurture, and lead the next wave of growth. I respectfully submit that Mark Hurd is not that candidate. It’s probably a moot point, because Hurd has a pretty cushy sinecure as co-president at Oracle.

Of the others, one or more of the former Cisco executives might be good candidates, including Daichendt and Richardson. Presuming Cisco can repatriate its mountain of overseas cash, Volpi or Giancarlo might be able to resuscitate Cisco’s growth-by-acquisition model.

Casting an eye at those who’ve never been at Cisco,  I question whether Donatelli is the right fit, and I suspect that Kevin Johnson will remain at Juniper. Former McAfee CEO Dave DeWalt is an interesting possibility. He has a mix of operational, sales, and M&A aptitude that Cisco’s board might find compelling.

Perhaps the good folks at Betfair should establish a “market” on the next Cisco CEO.

UBS Analyst: Juniper Might be Planning Significant Workforce Reduction

Unconfirmed rumors of significant layoffs at Juniper Networks are making the rounds.

Adding to the speculation is a report by UBS analyst Nikos Theodosopoulos, as reported by Forbes’ Eric Savitz,  that Juniper might be planning “a deeper workforce reduction than previously anticipated, perhaps about 10% of its total headcount . . . .”

Postscript: Earlier today, Om Malik, of the eponymous GigaOm, wrote a post in which Juniper replied to  Theodosopoulos’ report, saying that “rumors today of a 10% reduction to our workforce are grossly overstated and inaccurate.”

Mazzola’s Next Move

I’ve written previously about Mario Mazzola, Luca Cafiero, and Prem Jain, Cisco’s triumvirate of engineering maestros. My last post in which they figured prominently dealt with Cisco’s seeming retirement of its spin-in move.

Explaining the Spin-In

For those not familiar with the spin-in concept, I will now quote from my earlier post:

 “Such deals typically involve a parent company, such as Cisco, allowing a team of engineers and business managers to leave the corporate nest to create breakthrough products and technologies. These arm’s-length ventures are funded by the parent company exclusively or sometimes by the parent company and other investors, such as VCs. The parent company’s ownership ratio of the venture increases as technology milestones and business objectives are reached, until eventually the venture is spun, in its entirely, back into the mothership. Hence, the term “spin in.”

Cisco executed a number of spin-in arrangements, but its best-known examples involved storage-networking startup Andiamo Systems, which Cisco officially acquired in the summer of 2002, and Nuova Systems, which Cisco finally acquired in full in the spring of 2008.

The companies had more than their spin-in natures in common. Both were led by Mario Mazzola, Cisco’s on-again-off-again chief development officer (CDO). What’s more, the teams at both companies included many of the same players, namely Luca Cafiero, Prem Jain, and Soni Jiandani.”

Startup Rumor

I wrote that post last summer, and, while Soni Jiandani remains in a prominent executive position at Cisco, serving as senior vice president for server access and virtualization, the other three — Mazzola, Cafiero, and Jain — are the subject of rumors.

According to unconfirmed reports, Mazzola is leading another startup effort. Cafiero and Jain might be joining him. I don’t know what this alleged startup might do, but some say it initially might function as an incubator/VC operation, on its own or perhaps in league with another Silicon Valley VC outfit.

Spin-In Unlikely

It is not thought to be another Cisco spin-in. Given the substantial layoffs John Chambers is overseeing currently at Cisco, it would be difficult for him to sell investors, analysts, and — last but not least — employees on the merits of a high-priced spin-in maneuver that would make a few people richer than Croesus while  others are being escorted to the door and entire business operations within Cisco are facing extinction.

That’s not to say it won’t happen — Cisco and Chambers could argue that a particular spin-in initiative is absolutely essential to the company’s renovated strategic vision — but the odds are not in its favor.

Regardless of whether Mazzola is fronting a standalone startup or yet another Cisco spin-in venture, it will be interesting to see what he does next.