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Cisco’s Slim Down Program

Posted on Monday, Mar 5th 2007

On a few occasions, recently, the topic of Cisco’s inevitable lay-offs in Silicon Valley came up. It is true, that Cisco is a FAT company, with a very large (and expensive) workforce in the valley.

However, the big new market opportunities in front of Cisco are all in the emerging, developing markets, and there, the bloated cost structure will become a real problem, as the Chinese start giving them a run for their money!

This is a difficult article for me to write, as I have friends at Cisco who are part of this “bloated” cost structure. The same applies to many of the BIG Silicon Valley employers like SUN, Oracle, Intel, AMD, etc.

But, almost inevitably, over the next 5-10 years, there is going to be a tremendous slimming down at all these companies, especially Cisco, where the emerging market opportunity is already well upon them.

The good news is, many of these people are from those very low-cost destinations which would absorb the impact of the downsizing. Perhaps, some of these employees would be happy to go back home. To make this transition smooth and effective, I invite you to read an earlier article: Team Of Twenty One.

The news for Silicon Valley is likely to not be that good, though. Most likely, real estate in San Jose, Cupertino, Fremont and other areas where these employees live today, would crash. An exodus of tens of thousands of people away from the valley would be a shock quite difficult to absorb, I presume.

But is there an alternative? Cisco’s fat, I am afraid, is unhealthy, and it would make them vulnerable to competition that is trim and nimble. China, particularly, is a country to fear.

As a shareholder, I do want to know what is Cisco’s slim down program.

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http://business.newsfactor.com/story.xhtml?story_id=122003XC24NW

Rumor has it that Cisco employee strength will grow to 10,000 in India.

Cisco Emerging Market Strategy could be a two-pronged approach. Both India and China are huge growth markets. If India has the engineers to serve these markets and develop products for these markets, China has the manufacturing power. A joint approach will help Cisco.

So far no one has talked about trimming FAT in the valley. Its a hard proposition. Maybe it will come from other Cisco development centers.

anonymous Tuesday, March 6, 2007 at 5:55 PM PT

Thanks for the pointer. Great article. Key point :

::

“Cisco sees a similar market developing in networking,” says Alok Shende, a vice-president at research firm Frost & Sullivan. He puts the networking market in India at over $1 billion. Besides, Cisco has a strong competitor in Juniper Network and Chinese company Huawei Technologies in India. In China, homegrown rivals like Huawei and Harbour Networks have been grabbing share from Cisco. “It cannot afford to lose India,” says Ashok Jhunjhunwala.

The other issue is cost. Huawei can compete against Cisco on price because of its cheap talent pool. Facing those pressures, Cisco will find it hard to maintain its high margins unless it develops its own vast force of low-cost engineering talent.

::

The FAT in Cisco is most acute in the valley, so even if Cisco is not discussing it that much publicly, you can rest assured, the subject is alive and kicking in their board room.

Sramana Mitra Tuesday, March 6, 2007 at 6:10 PM PT

[…] Posted by ksankar under Technology and Software  Recently I came across a blog from Sramana Mitra very interesting points. So I am going to take a detour from the main feature and ponder […]

Are Silicon Valley companies FAT ? « My missives Friday, March 9, 2007 at 7:26 PM PT

Good line of thought, but difficult to agree. I have posted my pondering on this at http://doubleclix.wordpress.com/2007/03/10/are-silicon-valley-companies-fat/.

Krishna Sankar Friday, March 9, 2007 at 7:30 PM PT

Krishna,

I assumed that you are intelligent enough to extrapolate that at Cisco’s scale, we’re talking 210, or 2100, rather than 21! The number doesn’t matter, the concept does. May be I assumed wrongly?

And at those scales, projects can very well be coordinated, distributed in different centers, etc. You will see that happening in plenty over the next five years. Infosys, Wipro, Satyam – companies that have scale in India – have already figured the equation out, and spreading their operations around.

All the newcomers – especially the biggies – like Cisco, SAP, Microsoft, Intel – will have to follow suit. IBM is already doing so. It’s just the reality of scaling operations in India today.

As for questioning Cisco’s fat in Silicon Valley, I have to respect the fact that you are a Cisco employee, and thus quite threatened by the observation. I received plenty of flame-mail to this effect, so no surprises.

Let’s save the salad for 5-10 years. The fat will get shaved, and then it would be a worthwhile lunch hour to spend on this.

Sramana

Sramana Mitra Friday, March 9, 2007 at 9:03 PM PT

Good points but I will have to disagree on some points especially to the doom and gloom scenario for bay area employment and its effect on real estate in the valley. Cisco (or Intel, Oracle…) will eventually have respectable revenues from emerging markets. However barring some other economic catastrophe, US revenue numbers will continue to be huge. These companies will continue to hire in India and China in big numbers for some time to come. The proportion of Indian head count to overall company wide head count has been growing in all these companies for many years now. In some cases projected to exceed 20% of overall headcount in the near future. However one should remember that Cisco (and other major tech companies) have a healthy and improving employee productivity numbers. Therefore barring a 100-year flood, as John Chambers described the 2000 bust, major retrenchment in the US is unlikely. For all you know, emerging market opportunities for Cisco may actually help maintain the status quo.

After doing a one year stint in India, I have come to realize that India has its own issues. Not everybody of Indian origin would want to relocate after having spent many years here. There will be resistance to going back unless some significantly better package or responsibility is offered. A tight labor market, rising wages, appreciating rupee, high attrition and poor skills at entry level, infrastructure woes means that its not such a slam-dunk decision as one would expect.

In the next 5 years, the real estate in the valley has more to fear from the fallout of the real estate bubble and the sub-prime mess rather than employment situation at Intel or Cisco.

Just FYI…I do not have real estate investments in India or Bay Area neither do I work at Cisco

Aditya A Saturday, April 7, 2007 at 3:14 PM PT

[…] H3C, on the other hand, has become the most critical piece of the 3Com strategy today. Readers may recall my prior piece, Cisco’s Slim Down Program. […]

Eric Benhamou & the Turnaround of 3Com (Part 17) - Sramana Mitra on Strategy Wednesday, September 5, 2007 at 5:07 AM PT

[…] Its stock is doing well and is currently trading in the range of $31 and $33. The only problem I see in the company is if some of its competitors get their act together, and present a compelling alternative to its product line that is significantly cheaper. 3Com, for one, is hoping to become successful with that strategy, although they are way behind Cisco. The company has bought H3C, its Chinese JV with Huawei, to achieve a dramatically different cost-structure than Cisco, which, as I have said before, remains a fat company. […]

Online Video Beneficiaries: Cisco - Sramana Mitra on Strategy Thursday, September 6, 2007 at 7:29 AM PT

[…] on the other hand is an important element of 3Com’s low-cost strategy. In my Cisco’s Slim Down Program piece, I articulated my concern about Cisco’s bloated cost structure. 3Com has a golden […]

Online Video Beneficiaries: 3Com? - Sramana Mitra on Strategy Tuesday, September 11, 2007 at 4:58 AM PT

[…] I said earlier, that 3Com is trying to take on Cisco with its Chinese JV H3C in my Online Video Beneficiaries series, and that Cisco is a fat company that deserves to be gone after by someone who has its acts together with a lo… […]

3Com Is Now REALLY Going After Cisco - Sramana Mitra on Strategy Friday, September 28, 2007 at 10:17 AM PT

Cisco is a fat company no doubt.
If companies don’t have a start up attitude always , if they are not paranoid of new players in the game, they are going to face the music.

Cisco lacks this . People here are laid back. Middle management isn’t good.

Let’s see … 🙂

Tom Harris Saturday, April 12, 2008 at 8:13 PM PT