Cisco sale of Mexican facility seen as "worrying"

Tuesday, July 19, 2011

Cisco's (Nasdaq: CSCO) announcement that it will sell its manufacturing facility in Mexico is "worrying," according to Frost and Sullivan consultant Marcelo Ruiz.

Cisco announced the agreement on July 18 with Taiwanese electronics producer Foxconn technology group to sell the plant, located in Ciudad Juárez in northern Mexico.

"This is a worrying announcement because we were used to Cisco's positive results, in terms of growth, acquisitions and transactions and the offering of new services," Ruiz told BNamericas.

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The Mexican facility, acquired by Cisco in 2006, manufactures video and telecommunications equipment. It has more than 5,000 employees.

Cisco's plan to reduce costs includes a 9% reduction in its workforce.

According to the company, around 6,500 employees would leave Cisco as part of the reduction plan for US$1bn in annual operating expense, announced in May. This includes about 2,100 staff opting for early retirement.

"This move is part of Cisco's operational reduction plan and part of the stock market and shareholder pressure to deliver positive numbers. Additionally, it's pressure from the market itself because competition in this field is really hard," Ruiz said.

The Mexican transaction is subject to regulatory approval and is expected to close by October 2011.

Cisco shares closed Tuesday at US$15.66, up 0.23%