Cisco May Cut as Many as 10000 Jobs to Buoy Profit - Bloomberg

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Sales of Cisco’s switches and routers, which made up more than half of revenue last year, will continue to slip. Photographer: Jock Fistick/Bloomberg

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July 11 (Bloomberg) -- Brian Marshall, an analyst at Gleacher & Co., talks about the possibility that Cisco System Inc. may begin "pretty large" workforce reductions in August. Marshall speaks with Betty Liu and Jon Erlichman on Bloomberg Television's "In the Loop." (Source: Bloomberg)

July 11 (Bloomberg) -- Brian Modoff, an analyst at Deutsche Bank Securities Inc., talks about Cisco Systems Inc.'s cost-reduction strategy and the outlook for layoffs at the world's largest networking-equipment company. He speaks with Emily Chang and Cory Johnson on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

The cuts include as many as 7,000 jobs that would be eliminated by the end of August. Photographer: Gianluca Colla/Bloomberg

Cisco Systems Chief Executive Officer John Chambers. Photographer: Jacob Kepler/Bloomberg
Cisco Systems Inc. (CSCO), the largest networking-equipment company, may cut as many as 10,000 jobs, or about 14 percent of its workforce, to revive profit growth, according to two people familiar with the plans.
The cuts include as many as 7,000 jobs that would be eliminated by the end of August, said the people, who asked not to be identified because the plans aren’t final. Cisco is also providing early-retirement packages to about 3,000 workers who accepted buyouts, the people said.
Cisco Chief Executive Officer John Chambers is slashing jobs and exiting less-profitable businesses as competitors such as Juniper Networks Inc. (JNPR) and Hewlett-Packard Co. (HPQ) take market share in Cisco’s main businesses with lower-priced, simpler products. Sales of Cisco’s switches and routers, which made up more than half of revenue last year, will continue to slip, said Brian Marshall, an analyst at Gleacher & Co.
Eliminating jobs will help Cisco wring $1 billion in savings in fiscal 2012, the company said in May. Cisco expects costs of $500 million to $1.1 billion in the fiscal fourth quarter as a result of the voluntary early retirement program, it said in a quarterly filing.
“We will provide additional detail on the cost reductions, including layoffs, on our next earnings call,” Karen Tillman, a spokeswoman for San Jose, California-based Cisco, said in reference to an earnings call scheduled for early August. She declined to discuss job-cut figures.
The voluntary retirement packages included one year’s pay and medical benefits, and were offered to about 5,800 employees, two people said.
“The revenue trajectory hasn’t been where it should be,” Marshall, who has a “neutral” rating on the stock with a target price of $17, said in an interview. “The company is not staffed on an appropriate level. They simply have too many employees.”
Cisco gained 7 cents to $15.50 as of 9:32 a.m. New York time. It has dropped 24 percent this year before today on the Nasdaq Stock Market, while the Standard & Poor’s 500 Index has risen 4.9 percent.
Analysts at Gleacher and Miller Tabak & Co. said yesterday that the company would cut at least 5,000 jobs as part of a turnaround effort.
Cisco’s share of worldwide switching revenue dropped 5.8 percentage points to 68.5 percent in the first quarter of 2011 from a year earlier, according to a May report from Dell’Oro Group, a Redwood City, California-based researcher. Hewlett- Packard gained switching share in that period.
In global router sales, Cisco lost 6.4 percentage points to 54.2 percent of the market, while Juniper gained, Dell’Oro said.
Cisco’s revenue is projected to rise 7 percent this year to $43 billion, less than the 11 percent growth posted in 2010, according to the average estimate of analysts in a Bloomberg survey. Analysts have an average stock target price of $20.62, Bloomberg data show.
Cisco said in May that it shuttered the Flip video-camera unit and cut 550 jobs. The company may eliminate more positions in the consumer-product unit, which makes Linksys home- networking equipment, Marshall said. Some investors have said the company should exit consumer products entirely to focus on traditional enterprise offerings such as routers and switches. Cisco’s equipment is used by corporate networks and telephone and Internet service providers to direct Web traffic.
Trimming about 5,000 jobs would reduce operating expenses by about $1 billion annually and boost 2012 earnings by about 8 percent, Marshall said.
The company is also reorganizing management to streamline its business and focus on areas of growth, Cisco said in May. To speed decision making, the company organized field operations into three geographic regions and reformed a council-style management structure.
To contact the reporters on this story: Ashlee Vance in San Francisco at avance3@bloomberg.net; Olga Kharif in Portland at okharif@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net.
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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Cyprus Fire That Killed Eight Spread From Power Station to Munitions Store - Bloomberg

An explosion on the coast of Cyprus that may have killed at least eight people was caused by a fire at a power station that spread to a munitions dump at a naval base, state radio CyBC reported.

The blast in Zygi on the eastern coast of the Mediterranean island happened after the fire spread to two containers loaded with munitions that were seized in 2009 from a ship, CyBC said. Eight people were killed, CyBC reported, citing the Cyprus News Agency. Cyprus Fire Department authorities couldn’t immediately confirm the number of casualties.

Fifty firefighters and 10 fire trucks are battling the blaze, said a fire official, who declined to be identified by name.

The Cyprus Power Authority, the island’s state-run electricity company, asked consumers to reduce power usage and not use air conditioners after the fire damaged the distribution network, according to an e-mailed statement.

The munitions that exploded may have come from the Russian- owned, Cypriot-flagged vessel Monchegorsk that was intercepted by Cyprus in 2009. The U.S., Britain and France said at the time that the Islamic Republic of Iran Shipping Lines chartered the vessel to send weapons-related material, including what they described as “bullet shells” and anti-tank munitions, to Syria. Iran said the seizure of the arms shipment was illegal.

To contact the reporter on this story: Stelios Orphanides in Athens at sorphanides@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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China's June Trade Surplus Reaches $22.27 Billion, Customs Bureau Says - Bloomberg

Containers are stacked at the Yangshan Deep Water Port in Shanghai. Photographer: Qilai Shen/Bloomberg

July 8 (Bloomberg) -- George Magnus, a senior economic adviser at UBS AG, and Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co., offer their views on China's economy and central bank monetary policy. China raised benchmark interest rates for the third time this year, adding to efforts to cool the world’s fastest-growing economy after inflation accelerated to the quickest pace since 2008. This report also includes comments from David Cohen, an economist at Action Economics, Markus Schomer, chief economist at PineBridge Investments LLC and Pauline Loong, senior vice president and political analyst at CIMB Securities (HK) Ltd. (Source: Bloomberg)

July 8 (Source: Bloomberg) -- Norman Chan, chief investment officer at Banyan Asset Management Ltd., talks about China's economy, central bank monetary policy, and stock markets in the mainland and Hong Kong. Chan also discusses Europe's sovereign debt crisis and the U.S. economy. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

China’s trade surplus widened more than forecast to $22.3 billion in June, the highest level in seven months, as imports grew at the slowest pace since 2009.

The gap exceeded all the 21 estimates in a Bloomberg News survey of economists, with the median projection at $14.2 billion. The surplus was $13.1 billion the previous month and $20 billion a year earlier. The customs bureau released the data in an online webcast today.

The surplus adds to the cash flooding the economy and complicates Premier Wen Jiabao’s efforts to cool the fastest inflation in three years. Policy makers are seeking to rein in price gains that are stoking social discontent without choking off growth that’s already showing signs of slowing.

“We don’t think the PBOC will halt monetary tightening soon,” said Liu Li-Gang, head of Greater China economic research at Australia & New Zealand Banking Corp. in Hong Kong. The central bank will increase bill sales to soak up the extra liquidity from the trade surplus and prevent it from boosting money supply, he said.

The People’s Bank of China has raised interest rates five times since mid-October, the latest on July 5, and increased banks’ reserve requirements nine times since November to a record level to rein in liquidity. Consumer prices climbed 6.4 percent last month, the most in three years.

Liu said the central bank may need to raise reserve requirements further in the second half if trade surpluses are “persistently large” and will also need to increase benchmark rates as returns on savings are still below inflation.

A report on July 13 will show China’s gross domestic product advanced 9.3 percent in the second quarter from a year earlier, down from 9.7 percent in the first quarter, according to the median estimate in a Bloomberg News survey.

China’s trade surplus last month was the biggest this year and the widest June gap since 2007.

Exports climbed 17.9 percent, the least since December after excluding seasonal distortions from the Chinese New Year holiday, to a record $162 billion. Imports jumped 19.3 percent to $139.7 billion, the customs bureau said, the weakest expansion since gains resumed in November 2009 after a year-long decline.

Analysts’ median forecasts were for an 18.6 percent gain in overseas shipments and a 25.3 percent increase in imports.

“The still-large trade surplus may add to yuan appreciation pressure in the short term, but faster gains may hurt export growth, which has been on track to slow down,” Shen Minggao, an economist with Citigroup Inc., said in a telephone interview. Slower import gains indicate the economy is cooling “but a hard landing is almost impossible, policies won’t be significantly relaxed in the second half,” he said.

Shen estimates the yuan will appreciate around 4 percent this year. U.S. officials and lawmakers from Treasury Secretary Timothy F. Geithner to New York Senator Charles Schumer have sought bigger gains in the yuan to help curb the bilateral trade gap.

China, the world’s biggest consumer of energy, iron ore and soybeans, has seen its import bill surge over the past year as commodity costs climbed.

Higher global prices are increasing inflationary pressure in China, and led to a 14.7 percent increase in the overall price of imported commodities in the first half, Zhao Fudi, a customs bureau spokesman, said in an online broadcast today.

Import growth in June was held back by a 12 percent drop in net crude oil shipments, the first year-on-year decline since December, customs data show. At the same time, the average cost of crude imports in June was $110 a barrel last month compared with $77 a year earlier, the data show.

The government is cutting duties to help ease the impact on imported inflation from surging commodity prices. The finance ministry said June 24 it would remove import tariffs on diesel and jet fuel and cut levies on gasoline, fuel oil, zinc and some blended cotton fabrics effective July 1.

Higher costs are crimping profit at oil refiners and steelmakers. Angang Steel Co. said July 8 its first-half net income may have dropped 92 percent because of the “significant” increase in the price of raw materials and fuel which “substantially exceeded” the increase in selling prices.

“China has to use currency gains to curb imported inflation,” Edmond Law, deputy head of foreign exchange at BWC Capital Markets in Hong Kong, said before today’s data. “Policy makers aren’t left with many monetary tools after the recent interest-rate hike.”

The yuan closed at 6.4650 per dollar in Shanghai on July 8. The currency touched 6.4599 on July 4, the strongest level since the country unified official and market exchange rates at the end of 1993. Non-deliverable forwards indicate a gain of about 1.3 percent against the dollar in the next 12 months.

Exports to the European Union and U.S., the two biggest trading partners, rose 16.9 percent in the first half, compared with overall export growth of 24 percent, Zheng Yuesheng, head of the customs bureau’s statistics department, said today. “The weak economic situation in main export markets has posed serious challenges to China’s efforts to maintain stable export growth.”

The U.S. unemployment rate unexpectedly climbed in June and employers added the fewest workers in nine months, a government report showed on July 8, posing a threat to consumer spending in the world’s biggest economy. The European Central Bank raised its benchmark interest rate on July 7 even as euro zone countries grapple with a worsening sovereign debt crisis.

China’s competitive advantage is also being tested by higher labor costs and yuan appreciation, Zheng from the customs bureau said today.

Companies including Nike Inc. are switching production to Asian countries where wages are lower, contributing to the moderation in export growth. Vietnam surpassed China last year to become the biggest supplier of footwear to the world’s largest sportswear company, according to its annual report.

China’s trade surplus in the first six months of the year dropped 18 percent from a year earlier to $44.9 billion, the bureau said today, the lowest in seven years.

The excess, which has fallen from a record $295 billion in 2008, may drop further to about $150 billion this year as slowing global demand affects exports, according to Wang Tao, a UBS AG economist.

--Victoria Ruan, John Liu, Lily Lou, Zheng Lifei. With assistance Chua Baizhen in Beijing and Ailing Tan in Singapore. Editors: Paul Panckhurst, Nerys Avery,

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at +86-10-6649-7570 vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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Buffett Bets 'Very Heavily' Against Double Dip - Bloomberg

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., arrives for a morning session at the Allen & Co. Media and Technology Conference in Sun Valley, Idaho. Photographer: Matthew Staver/Bloomberg

July 8 (Bloomberg) -- Warren Buffett, chief executive officer of Berkshire Hathaway Inc., talks about the outlook for the U.S. housing market and employment. Buffett, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses President Barack Obama's policies and continued negotiations on a U.S. deficit plan. The speak from the Allen & Co. conference in Sun Valley, Idaho. (This is an excerpt of the full interview. Source: Bloomberg)

July 8 (Bloomberg) -- Warren Buffett, chief executive officer of Berkshire Hathaway Inc., talks about the debt ceiling debate and the U.S. economy. Buffett, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses his views on acquisitions, the labor market and Todd Combs. (Source: Bloomberg)

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., speaks during an interview with Bloomberg Television on the sidelines of the Allen & Co. Media and Technology Conference in Sun Valley, Idaho on July 8, 2011. Photographer: Scott Eells/Bloomberg

Billionaire Warren Buffett said he is wagering on continued economic expansion and doesn’t expect a second recession.

“I would bet very heavily against that,” Buffett told Bloomberg Television’s Betty Liu on the “In the Loop” program today after data showed slowing U.S. job growth. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”

The unemployment rate unexpectedly climbed to 9.2 percent in June, the highest level this year, and hiring by companies was the weakest since May 2010, Labor Department data showed. U.S. employers added 18,000 jobs last month, less than the 105,000 median estimate in a Bloomberg News survey.

“It means that we’re still a ways off from getting to where we should be,” Buffett said in the interview, in Sun Valley, Idaho. “We’re seeing growth around the world, but it’s not mushrooming.”

Buffett’s Berkshire Hathaway Inc. (BRK/A) added about 3,000 jobs last year after cutting more than 20,000 positions in 2009. The Omaha, Nebraska-based company employed about 260,000 people at units from insurance and shipping to consumer goods and energy, Berkshire said in February. Employment gained last year at Berkshire units including car insurer Geico and railroad Burlington Northern Santa Fe. Staffing fell at carpet-maker Shaw Industries.

“Jobs come with demand,” Buffett, 80, said today. “We’re seeing demand a lot of places but we’re not seeing it in the construction field.”

Berkshire owns a real estate brokerage, a maker of manufactured homes and units that construct roofs and sell bricks and carpet. Buffett said in February that a housing recovery would begin “within a year or so” and that he’s preparing the company’s businesses for growth. Buffett is chairman and chief executive officer of Berkshire.

Berkshire expanded its Acme Brick unit with a $50 million acquisition, and Johns Manville, the roofing subsidiary, is building a $55 million plant in Ohio, Buffett said in his annual letter. Shaw will spend $210 million on plant and equipment this year, Buffett said.

“We will come back big time on employment when residential construction comes back,” Buffett said. The unemployment rate will drop to 6 percent “within a few years,” he said.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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Treasuries Gain as Jobs Data, European Debt Turmoil Spur Demand for Safety - Bloomberg

Treasuries climbed, pushing five-year note yields to the biggest weekly loss in more than a year, as investors sought safety amid European sovereign-debt turmoil and data showing the lowest U.S. job gains in nine months.

Benchmark 10-year note yields dropped the most in almost three months as the U.S. unemployment rate unexpectedly rose to the highest level in 2011. China raised interest rates for the third time this year, spurring concern growth will slow. The Treasury will auction $66 billion in notes and bonds next week as the Aug. 2 debt-ceiling deadline looms.

“Concerns coming from overseas have been exacerbated by concerns at home after the jobs report, and Treasuries have rallied,” said Larry Milstein, managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “It seemed like we were coming through the economic rough patch, but this certainly takes the legs out of that hope.”

Yields on the five-year note tumbled 20 basis points, the most since the five days ended May 7, 2010, to 1.58 percent in New York, from 1.78 percent on July 1, according to Bloomberg Bond Trader prices. The 1.5 percent security due in June 2016 gained 31/32, or $9.69 per $1,000 face amount, to 99 5/8.

The benchmark 10-year note yield dropped 16 basis points, or 0.16 percentage point, the most since the week ended April 15, to 3.03 percent. Two-year yields slid eight basis points, also the biggest drop since April 15, to 0.39 percent.

Treasuries erased early losses yesterday after Labor Department data showed U.S. payrolls rose by 18,000 positions last month, versus a 105,000 gain forecast in a Bloomberg News survey. The jobless rate rose to 9.2 percent, from 9.1 percent.

May’s employment gain was revised to 25,000 jobs, less than half the advance initially estimated. Private hiring, which excludes government agencies, rose by 57,000 jobs, the weakest since May 2010. ADP Employer Services said on July 7 companies added 157,000 jobs in June.

The payrolls report “forces all the bond bears back to the drawing board,” said George Goncalves, head of interest- rate strategy at Nomura Holdings Inc., one of 20 primary dealers that trade Treasuries with the Federal Reserve. “This confirms that the data will remain soft and weak.”

President Barack Obama said in a televised appearance at the White House after the report the U.S. still has “a big hole to fill” in replacing jobs lost in the recession.

The data may add urgency to talks tomorrow, when Obama and Republican and Democratic congressional leaders will try again to agree on cutting deficits and raising the government’s $14.3 trillion debt ceiling. The Treasury says an accord is needed by Aug. 2 to avert a default on U.S. debt.

“There’s not much confidence that there’s a working plan to get the economy back on track, or confidence that there’s progress on the debt ceiling,” said Anthony Cronin, a Treasury trader at the primary dealer Societe Generale SA in New York.

U.S. lawmakers are likely to raise the nation’s debt limit by $1 trillion as part of a compromise that would include an equal amount in budget cuts, according to Citigroup Inc.

An agreement of that size would have “negligible” market impact because monthly government expenditures are about $107 billion, New York-based Citigroup Global Markets strategist Neela Gollapudi wrote in a research note yesterday to clients.

As the deadline approaches, the U.S. will sell $32 billion of three-year notes on July 12, $21 billion of 10-year debt on the following day and $13 billion of 30-year bonds on July 14. The sizes are unchanged from the June sales of the securities.

The Fed has held its target for overnight lending between banks at zero to 0.25 percent since December 2008 to support the economy. It completed a $600 billion bond-purchase program in June to stimulate growth and continues to reinvest maturing bond proceeds into the market.

Treasuries rallied for two days, with 10-year notes ending a five-day rout, after Moody’s Investors Service cut Portugal’s credit rating on July 5 to Ba2, or junk. The move stemmed partly from “the growing risk that Portugal will require a second round of official financing before it can return to the private market,” Moody’s said.

The Iberian nation followed Greece and Ireland in seeking a bailout from the European Union. Treasuries fell last week as Greek lawmakers approved an austerity plan to win more aid.

Three-month Treasury bill rates dropped below zero this week for the first time since 2008. They reached negative 0.0051 percent before trading at 0.0203 percent yesterday.

“People came to the conclusion that this situation in Europe is not going away any time soon,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York.

China raised rates to combat inflation. Its one-year deposit rate rose to 3.5 percent from 3.25 percent, the People’s Bank of China said on its website. The one-year lending rate will increase to 6.56 percent from 6.31 percent.

“The China story is obviously a component to the nerves in the market,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker.

Treasuries have returned 0.7 percent in July after falling 0.3 percent in June, according to Bank of America Merrill Lynch’s Treasury Master index. The S&P 500 has gained 1.8 percent this month after falling 1.7 percent in June.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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