Tech Job Watch May 05 2011

Cisco Moves to Streamline Management, Business

By nathan becker

Cisco Systems Inc. said it will switch to what it calls a "streamlined operating model," as the struggling networking giant looks to refocus operations and simplify its oft-criticized management structure.

The San Jose, Calif., company has struggled to expand beyond its core business of routers and switches, focusing its attention in as many as 30 different directions. That distraction has allowed rivals such as Juniper Networks Inc. to take market share and has led to criticism from analysts and investors.

Cisco said Thursday that it will streamline its sales, services and engineering organizations to focus on what it said are "the five areas driving the growth of networks and the Internet" -- routing, switching and services; collaboration; data-center virtualization and cloud computing; video; and architectures for business transformation.

"It's time to simplify the way we execute our strategy, and today's announcement is a key step forward," said chairman and chief executive John Chambers.

Cisco shares, down 34% over the past 12 months and 14% in 2011 alone, recently rose 1% to $17.65.

The move comes after Chambers conceded in a memo last month that the company had suffered a lapse in operational execution, and had confused customers and disappointed investors. A few days later, Chambers warned that the company would have to cut back on several areas, making "tough decisions" on where to shut off spending to preserve profitability.

That led Cisco to curtail some of its consumer operations, including shuttering its Flip video camcorder business, in an admission that its multiyear campaign to build a consumer brand had largely failed. Cisco at the time called that move part of a "deep portfolio analysis."

Analysts view the actions Thursday as Cisco's second step in its restructuring program--something that eventually could help it gain back some of the ground it has lost.

"None of this comes as a shock," Morgan Keegan analyst Simon Leopold said. "We think the self awareness that something needs to be fixed is a good step in the process, but it's premature for Cisco to declare victory."

The company has recently employed a chaotic management structure that included over 50 internal standing committees. Executives sit on as many as five such panels and are expected to devote a significant chunk of their time to them.

In recent years, the company had expanded aggressively beyond its core business selling the routing and switching systems that form the plumbing of the Internet into dozens of adjacent markets--such as high-end video conferencing, energy-management gear and consumer products--in search of revenue growth.

Cisco has reported two quarters of disappointing results and several executive-level changes recently. In February, Cisco posted an 18% drop in quarterly profit and a 6% sales increase, amid growing pressures in its core network-switching business from rivals Hewlett-Packard Co. and Juniper.

Nathan Becker is a reporter for Dow Jones Newswires, where this story first appeared. Write to him here.

This story also appeared on WSJ.com.



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