Cisco Restructures, Sees Business Stabilizing

SAN FRANCISCO – Cisco Systems Inc., the biggest maker of computer-networking equipment, said on Thursday it was restructuring into 11 technology groups -- its biggest reorganization since 1997 -- and added that it sees signs its business is stabilizing.

Company officials said the restructurings are designed to streamline and focus Cisco's vast marketing and engineering operations.

``We were pleased with July's linearity and we've been pleased so far with August,'' Cisco Chief Executive John Chambers told Reuters, adding that so far the quarter is in line with its earlier guidance.

Cisco said earlier this month that it expected fiscal first-quarter sales to be flat to down 5 percent sequentially. Linearity refers to smoothness of orders during the quarter.

San Jose, California-based Cisco said it was making the move to the 11 groups from its current lines of business structure to reflect the blurring lines between customer segments, and added that the move was customer- and market-driven. It last reorganized in 1997, when it structured into three lines of business to target the service provider, commercial and enterprise markets.

The networking giant also said that Kevin Kennedy, the head of its telecommunications business, was leaving the company.

Mario Mazzola, an eight-year Cisco employee, has been named to the new position of chief development officer, and will oversee the 11 technology groups, Cisco said. Mazzola will report directly to Chambers.

The 11 groups are access; aggregation; Cisco IOS Technologies, which is its operating system that runs its networking gear; Internet switching and services; Ethernet access; network management services; core routing; optical; storage; voice; and wireless.

When the service provider market, composed of telecommunications companies such as the Baby Bells and their competitors known as competitive local exchange carriers, or CLECs, started to take off, Cisco zeroed in on selling gear to the newer and smaller rivals, an analyst said. However, the CLECs largely lost out to their older rivals.

``Cisco really failed at developing momentum with the incumbent local exchange carriers,'' or Baby Bells, said analyst Michael Cristinziano of Gerard Klauer Mattison. ``What they did is they supplied the arms to the guys that were trying to knock off the incumbents.''

``(Cisco) executed well on what they wanted to but what happened was the incumbents won,'' he said.

Charlie Giancarlo, formerly head of the company's commercial line of business, will head four of these technology groups and report directly to Mazzola. Michelangelo Volpi, a fast-rising star at Cisco and former chief strategy officer, will now be in charge of the largest tech group, Internet Switching and Services and will report to Mazzola.

James Richardson, formerly head of Cisco's enterprise line of business, will now be chief marketing officer, reporting to Chambers.

Kennedy, who ran the service provider line of business, will be leaving the networking company to pursue other opportunities, the company said. He will remain an industry and technical advisor to Cisco.

``I wanted Kevin to stay and offered him several positions, including chief technical officer,'' Chambers said. ``He just hit a time in his career where it's the right time to make a change.''

Previously, Cisco was organized into three lines of business: commercial, enterprise, and service provider.

``By realigning this way, what we do if we execute right is increase profit contribution,'' from individual product areas, Chambers said. ``This will free up resources to move into new market opportunities.''

``These are changes to grow our business, not to reduce head count or other issues,'' Chambers said. Cisco, a year and a half ago, was the world's most valuable company. Recently, it cut 8,500 jobs.

Cisco, along with other networking-equipment companies and telecommunications equipment providers has seen sales and profits tumble in the face of a high-tech recession and an overall economic slowdown.

On Aug. 7, Cisco reported a fiscal fourth-quarter net profit of $7 million, or nil cents a share, sinking 99 percent from $796 million, or 11 cents, a year earlier and posted sales on the low side of expectations. It also posted its first annual loss in its 11 years as a public company.

``We would have made these changes regardless of the timing,'' Chambers said, referring to the grim state of the networking and telecommunications industries.