Job cuts announced at Telefónica and Cisco respectively
The Spanish telco Telefónica and network equipment provider Cisco have each announced plans to cut 6,500 employees from their respective workforces.
Telefónica’s decision to cut 20% of its Spanish staff over the next three years is reported to cost €2.7 billion in severance pay. Falling sales in the Spanish market – particularly in the fixed-line market – coupled with an increase in competition which has seen cheaper operators steal its customers are cited as possible factors behind the move, along with the declining economic climate.
The company agreed a deal with unions in early July to layoff the 6,500 members of staff, promising the government it would cover all costs. Spain has been severely hit by the economic recession with unemployment now estimated to have climbed to over 20%.
Telefónica, however, posted a record net profit of €10.2 billion in 2010; a 30.8% year-on-year increase attributed to the company’s strong growth elsewhere in Europe and Latin America.
Ovum analyst Charlie Davies identifies the cuts as part of Telefónica’s long term strategy to position itself as a global entity, which the company is looking to achieve by shifting resources from a domestically dependent market towards a more balanced portfolio.
“I think one of the interesting things about Telefónica is that it is investing a lot of resources in emerging areas, such as e-health, which has materialised in a lot of service launches or new contracts. It is leveraging on its investment in R&D and deploying that innovation across all its country markets and then tailoring services towards local conditions. The company is certainly better positioned to achieve that,” she said.
“In terms of emerging markets, Telefónica are the number one player in Latin America, which has better growth prospects than certain African or Middle Eastern markets; areas where operators such as Orange have had to contend with political instability.”
Cisco will cut 9% of its staff as part of plans to reduce as much as $1 billion from its annual costs.
The cuts are estimated to cost the company $1.3 billion in severance pay, which the company plans to phase over several quarters. Two-thirds of the staff cuts are expected to come from redundancies and the rest from an early retirement plan. It has said that 15% of employees at or above VP level will also be cut.
The world’s largest manufacturer of computer networking equipment is also reported to be selling Mexican subsidiary Foxconn Technology Group as part of the cost-cutting move.
Cisco has suffered from increased competition in the computer-networking equipment market from the likes of Juniper Network and Hewlett-Packard, particularly for devices such as routers and switches.
The company reported record net sales of over $40 billion in 2010, an increase of 11% compared to 2009.
Ovum’s principal analyst Jens Butler said the move is part of Cisco’s “new strategic direction of streamlining to drive the philosophy of being easier to do business with and execute faster”.
“This streamlining (which will align with its five key priority areas) is aimed at integrating its various technology and services groups in an increasingly competitive market place and ultimately simplifying engagement with Cisco for its customers and partners,” he said.
“With this greater emphasis on its core competencies and cleaner engagement model with the multiple layers of its partner ecosystem, it is clear that Cisco is listening to and shifting with market dynamics rather than attempting to force the market on its own.”