Blue Coat Shifts Development to India in Significant Restructuring

A market leader in WAN optimization, where its primary adversaries are Riverbed and Cisco, Blue Coat Systems dropped a three-pronged announcement today.

One thread in the announcement was Blue Coat’s confirmation that net revenue for its second fiscal quarter, which ended October 31, tracked toward the high end of its previous guidance of $116 to $121 million.

Along with that news, however, it also announced a sweeping restructuring that will see it shed about 10 percent of its global workforce. Connected to that restructuring was Blue Coat’s announcement that it has acquired Indian firm S7 Software, which has approximately 50 engineers involved in software development, code migration, and network security. Blue Coat is paying $5.25 million for S7, which it describes as a “top engineering company in India.”

Expected to close in the third quarter of Blue Coat’s 2010 fiscal year, the S7 acquisition is the fulcrum for the company’s extensive restructuring.

According to a corporate fact sheet Blue Coat published earlier this year, it had about 1,450 employees, which means approximately 145 will be laid off.

As Blue Coat says in a press release:

The restructuring plan will shift a number of engineering positions from Sunnyvale, Calif. and Austin, Texas to it other locations, such as the site it plans to acquire in Bangalore, India, through the S7 Software acquisition. It also involves the closure of three small facilities in Riga, Latvia; South Plainfield, New Jersey; and Zoetermeer, The Netherlands. Blue Coat is also reorganizing other functional areas, including sales and marketing, general and administrative, and support, to gain greater efficiencies.

This is not a modest reallocation of resources; it’s a substantive overhaul. In the near term, it means the transfer of some Blue Coat jobs from North America and Europe to India, but in the long term it also suggests that Blue Coat will attempt to do as much of its engineering as possible in lower-cost India.

Regarding future R&D, Blue Coat said the following:

The Company’s research and development work will now be undertaken at four sites that include: Sunnyvale, Calif.; Draper, Utah; Waterloo, Canada; and the new center in Bangalore, India. Each development center will be vertically integrated, so that each can assume full responsibility for the entire development process for each new or enhanced product or technology. Previously, projects crossed multiple design centers, resulting in a higher cost structure and slower time-to-market.

Depending on how well the S7 venture proceeds, it isn’t difficult to envision Blue Coat researching and developing new products in India, with “enhanced” products or technologies pursued at the North American sites.

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