Analysts: Massive Layoffs at Cisco Not Necessarily Bad for Investors

Reports on Wednesday that suggest Cisco Systems (CSCO) could cut up to 20 percent of its workforce – or 14,000 employees, the biggest cut in the company’s history – have analysts wanting to know to what extent these job cuts will impact its bottom line, according to a report by Investopedia.

As with any mass layoffs, companies incur various one-time charges that could impact this figure, according to the report. But analysts reacting to the news say that the cuts could be a good thing for Cisco and its stock performance, which has risen some 15 percent over the past three months, Investopedia said, and sits at $30.62 at the time of writing.

The layoff rumors come ahead of its fourth quarter fiscal 2016 results, which the company will announce after the closing bell on Wednesday. Layoffs are expected to be announced in the coming weeks. 

According to a report by Barron’s, analyst Mitch Steves at RBC Capital said that if the news is true, the layoffs at this time makes sense as it shifts focus to newer areas of the business.

“We think a reduction in force would be beneficial given the number of acquisitions the Company has made,” he writes.

Jefferies & Co.’s George Notter said that he picked up on concerns that Cisco may be looking to reduce its headcount, and that the firm “wouldn’t be surprised if it’s true.”

Cisco has “used headcount reductions as a way to churn the bottom performers out of the business and reorganize more around strategic growth areas,” he writes.

In June, reports that Ericsson would cut 20 percent of its workforce sent its stock up 7.8 percent.