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Tech Rumor of the Day: Cisco Layoffs

With sales still in steep decline and no sign of recovery on the horizon, Cisco is expected to make a massive staff cut.

Updated from 10:42 a.m. EDT

With sales still in steep decline and no sign of recovery on the horizon,


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is expected to make a massive staff cut.

An avid optimist, CEO John Chambers has resisted the idea of a severe cut, but the darkening sales picture may force the company to take more drastic action.

"We expect Cisco to guide fiscal fourth quarter revenue down 17%-22% year-over-year, as demand continues to deteriorate," JPMorgan analyst Ehud Gelblum wrote in a research report Tuesday. Cisco didn't provided guidance for its the fiscal fourth quarter ending in July, but analysts expect a 20% decline from year-ago levels, according to Yahoo! Finance.

"We believe Cisco could also announce a 10% headcount reduction, which we calculate could save $900M annually," Gelblum added.

Tech watchers will not see this as anything but bad news for the sector. Networking gear rivals


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both recently

slashed sales projections

as telcos and businesses trim budgets.

A Cisco representative said the company doesn't comment on market rumors. Cisco had about 66,000 employees at the end of 2008.

Throughout the tech spending downturn, Cisco, and particularly Chambers, had been stubbornly holding out hope that a recovery was just around the corner. Despite near-term forecasts calling for quarterly sales declines, Cisco until recently had maintained a long-range revenue growth target range of between 12% to 17%.

But in February, Chambers called the still-accelerating economic downturn "the biggest challenge of our lifetime." Cisco already had started down the cost-cutting path, with a prior target to reduce about $1 billion in expenses this year.

On a conference call with analysts in February, Chambers said the company's cost management was "in pretty good shape." He summarized by saying: ""In very direct terms we are not going to consider a layoff at this point in time."

However, the pace of cuts isn't keeping up with sales declines. And now Cisco may have to do the unthinkable.

"The buzz is getting stronger, so it's anyone's guess when it's announced," says another analyst who asked not to be named. "But probably not before they report earnings in early May."