Cisco said Monday it will cut 6,500 employees from its workforce and sell one of its factories to China-based manufacturing giant Foxconn in an effort to shear off $1 billion from its annual expenses in its 2012 fiscal year.
The layoffs are targeted at executives and long-term employees nearing retirement. About 15 percent of employees at vice president level and above will be cut, and 2,100 other employees agreed to early retirement.
"While these decisions do not come easily, we believe we have right-sized the organization and realigned our workforce to support our priority areas, while retaining the capabilities and talent to effectively support our long-term strategy," the company said in a statement.
The job cuts come as Cisco is working to address long-term challenges to its business by reducing expenses and moving away from the consumer electronics market.
Employees in the United States, Canada and some other countries will receive layoff notices during the first week of August, with the remainder of the layoffs coming later in compliance with local laws and regulations.
The job cuts will cost Cisco $1.3 billion in severance payments over the next several quarters, with $750 million of the charges posted to its fourth-quarter fiscal year 2011 results, slated to be released on Aug. 10. The remainder of the charges will be spread out over its 2012 fiscal year.
The sale of Cisco's Juarex, Mexico, set-top box plant to Foxconn will allow the company to divest an additional 5,000 employees, who will become Foxconn employees during the first quarter of 2012.
Financial terms of the sale were not announced, and no job losses are expected to result from the deal. Cisco said the deal would help it simplify its business and reduce long-term costs.
Morningstar analyst Grady Burkett said Cisco's latest moves to cut costs boded well for the company's pledge to cut expenses.
"There are many places they can cut without undermining their core business," Burkett said, referring to the company's set-top box business and its Linksys routers. "This is definitely a positive."
Cisco's workforce has become bloated in recent years after a series of acquisitions helped to more than double its workforce from about 35,000 employees in 2004 to about 73,000 employees in 2010.
The company, which provides network gear to telecommunications companies, announced in April that it planned to move away from its non-core businesses to focus on areas closer to its central business, including routing, switches, services and video.
Cisco shuttered its Flip camera business in April in an effort to reduce its presence in the fickle consumer electronics market, which it courted for years with mixed results. The company also restructured its home networking unit, which includes its Linksys routers, and moved its umi telepresence product to its enterprise-oriented business.