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Cisco Announces Restructuring Plan to Optimize Costs

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Need to invest in key priority areas

The last few quarters have seen Cisco Systems (CSCO) battle a sluggish macroeconomic environment and slow revenue growth in its mature businesses. The company is now looking to save costs and improve profit margins. Cisco announced a restructuring plan that will enable the company to optimize its cost base in lower growth areas of its business segments.

It’s also looking to invest in key priority segments such IoT (Internet of Things), cloud, data center, collaboration, and security. Cisco said, “We expect to reinvest substantially all of the cost savings from these actions back into the businesses, and we’ll continue to aggressively invest to focus on our areas of future growth.”

According to Cisco, the restructuring will eliminate approximately 7% of the total workforce, or 5,500 employees, around the world. The restructuring plan is expected to begin in fiscal 1Q17.

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Gross margins improved in 4Q16

Cisco’s profitability improved YoY (year-over-year) in fiscal 4Q16. Its total gross margin rose 0.7 percentage points to 64.6%. Its product gross margins and service gross margins rose 0.7 percentage points and 1.1 percentage points to 63.9% and 67%, respectively. Cisco’s non-GAAP (generally accepted accounting principles) operating margin rose 1.3 percentage points to 31.4%.

Kelly Kramer, Cisco’s chief financial officer, said, “We also saw good momentum and improvement in the profitability for the full fiscal year. On a non-GAAP basis, our total gross margin for the year was 64.7%, an increase of 50 basis points, with increases in both product gross margin and service gross margin, up 0.3 points and 1.4 points, respectively.” Kramer added, “We remain disciplined, and focused on continuing to drive operational efficiencies and productivity.”

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