Updated with Cisco Confirmation: If you want to know how bad it is going to get for all of us in Silicon Valley, just look at Cisco Systems (s CSCO). For first time in its history the company is going to shut down for four days at the end of the year, according to a report by UBS Research. Remember when such shutdowns were associated with industrial era companies? Well, this is the new past as they say. I heard that a major internal annual event has been put on hold as well.
Cisco’s four-day shutdown is part of an effort by the company to save $1 billion. It might be more than just cost savings because Cisco (and many of us) doesn’t have visibility into 2009. Cisco, as a company has just seen Wall Street, a major customer shrink in size. At the same time it is facing low-cost competition from Dell (s DELL), HP (s HPC) and Huawei. The New York Times is correct in identifying HP’s ProCurve businesses as slowly becoming a major competitor to Cisco. “HP is a much more formidable challenger to Cisco, and it has sent an obvious message,” Nikos Theodosopoulos, an analyst at UBS Securities told The Times.
Cisco has confirmed the shutdown and other cuts in a blog posting pointing out that it had started talking about these initiatives following its Q1 2009 earnings release
We will be target reductions in travel and discretionary-related expenses, including offsites, outside services, equipment, events, trade shows, marketing and other activities. As part of this effort, we will also implement a year-end shutdown of the US-Canada theater from December 29, 2008, through January 2, 2009 (note that January 1 is already a holiday). There will be some exceptions for targeted business-critical teams including technical assistance services and channel partner and customer product ordering services.
While this is not our first year-end shutdown as we followed this longstanding Silicon Valley practice in our early years as a company, it is our first in over a decade. Given the difficult macroeconomic conditions, we believe our cost control focus at this time is appropriate while still providing our partners and customers with critical services over the holiday period.
This has everything to do with maintaining earnings growth when your major customers are pulling back. It is not that Cisco cannot afford to ride through the storm, they obviously can, it has to do with their ability to keep their metrics pointing upwards.
Obviously most companies dont have this luxury………
Don’t see a big deal here, if Cisco works 200 days, 4 days shut down is cutting 2% of the workload, they could let the workers work but now they want to save that cash, probably with no loss of productivity at all.
Hate to sound obtuse, but how does this save them money? Is the workforce not paid for those four days, or are they forced to take it as vacation?
If they are forced to take it as paid vacation then the overall outstanding vacation is reduced on their financial statements. If it is unpaid (which I doubt) it saves wages.
I worked at a large tech company that did this almost every year. No one minded because everyone took that time as vacation anyway. However, with an official shutdown the company saved power and heating and basic staffing costs of already mostly empty offices.
This just shows Cisco is serious about cutting costs right now.
Sounds like a smart thing to do to cut costs, 4 days is not a big deal it’s barely a week.
Om:
I just posted a blog entry on this topic on our corporate blog…here is URL to entry: http://blogs.cisco.com/news/comments/managing_in_a_challenging_economy/
Net net: we believe our cost control focus at this time is appropriate while still providing our partners and customers with critical services over the holiday period.
@Nathan
Did you work at Nortel by any chance? They have been using this saving-methodology for a while.
I’ve worked in semis for twenty years, and this is very common. Cisco themselves said they used to do it but haven’t in about ten years. This is being overblown on Wall St.
What do you think is the methodology that they use to determine the operational savings that they hope to achieve?
@Om,
We did this at Sun in the late 80’s thru mid 90’s. I left mid 90’s so don’t know if Sun continued the practice. Shut down was cost efficient between Christmas and New Year’s day.
Best,
Curtis
If you look at what the costs are in terms or power and heating alone is for a series of large offices you come up to probably a pretty penny per month. So, 4 days can turn out to be quite a bit. Good move; not only is cost sensitive, but also environmental. And if this measure saves people jobs, then even better.
@Om Malik No, I worked at Synopsys from 2000 – 2005. The summer before I left they did a shutdown around Independence Day too with forced vacation time (or leave without pay if you had no vacation time).
Fun times. Glad I moved on.
I remember listening to NPR describe HP’s stock climbing in a down market.
Is HP cornering market share while Cisco treads water? Well let me share a quick story:
When I worked at a major IT reseller from 2004-2006 HP ‘spiffed’ the hell out of their networking equipment (not uncommon). The difference for HP was their ability to realize volume discounts and a longview for positioning themselves as a networking partner.
Shutdown? Couldn’t they at least called it an ‘Employee Recognition Time Off’?
Cisco has been doing this on and off for years. If you read what you published — Chambers said so himself. Of course it does save money and it makes him look good to investors.
If I were a CEO right now, I’d take advantage of the opportunity to thin the fields while I were at it. The first step is to scare the wits of employees and investors …
Cisco plans and schedules it, sends people to paid vacation, manufacturing costs are cut, everything rescaled down to demand — everybody are happy, including investors, apart… yes, apart competitors who didn’t do that 🙂
This is not really new. I worked at Cisco for nearly 10 years starting in 1996. There were at least 2 other occasions I can remember when employees were required to take vacation time. While Cisco didn’t do an official shut down (i.e. specify the days that had to be taken as vacation), they did require that everyone took 4 or more days of PTO time during the holidays.
“For first time in its history the company is going to shut down for four days at the end of the year”
“While this is not our first year-end shutdown as we followed this longstanding Silicon Valley practice in our early years as a company”
The author did not read the quote he used…. please brush up on basic journalism, or basic reading.