ChannelTrends: Vendors Shuffle the Deck Chairs and Downsize the Boat

Whether you’re listening intently to the federal debt ceiling and budget discussions or not keeping up at all with the debate, what happens in Washington, D.C., over the next week could have a major impact on the channel. If no deal is reached by August 2nd (coincidentally, day two of CompTIA Breakaway, the other big event in the nation’s capital), experts say the federal government will be forced to default on some of its loans or at least reduce payments significantly to some companies or individuals. The lack of a resolution adds more fuel to the country’s economic woes and appears to be resonating all the way from Wall Street to Silicon Valley, with a number of significant vendor layoffs announced this week.

The latest workforce reductions may not be directly related to the debt ceiling discussion, but a number of tech companies have been forced to face the reality of the fiscal challenges that keep piling up. Markets that were previously considered sound are stumbling, and revenue reductions from federal, state and local governments surely will not help.

As both the public and private sectors scramble to figure out what their costs (taxes and prices including inflation) will be in the future, a conservative expenditure approach appears to be affecting technology suppliers now. For example, if the extreme case were to occur and the U.S. defaulted on some of its debts, payments to Cisco, Dell or any other tech supplier probably won’t be top on many politicians’ priority lists. It would be political suicide to deny checks to Social Security recipients and the military, while ensuring Fortune 500 companies get theirs. Government VARs also could be on the short end of the payments process too, so an interruption in the flow of cash from the treasury could impact a significant part of the IT channel. Again, while few think this scenario will play out, the fact that it COULD happen is enough to cause economic ripples throughout the economy.

Could Cisco Restructure Be in the Works?
One analyst group suggests a reduction of 5,000 employees, while a report in Bloomberg suggests that the number could be twice that. Reports on Cisco layoffs have been steady over the last month, as the network and communications company aims to cut an estimated $1 billion in expenses. At this week’s Cisco Live event in Las Vegas, CEO John Chambers suggested that the company’s structure has become cumbersome for many channel partners and changes are on the way. While Chambers didn’t specify layoffs in his keynote, analyst Brian Marshall of Gleacher & Company predicted that as many as 5,000 of the companies positions would be eliminated through attrition and dismissals. According to his comments to Channel Insider, “the job cuts could rival the 8,000 layoffs that Cisco initiated in 2001, soon after the Internet market crash.”

In addition to Chambers’ desire to fix the partner program infrastructure, investor concerns may be weighing heavily on the company. When sales growth is less than expected, investors will likely respond favorably to a significant expense reduction—such as a $1 billion personnel cut.

What affect does this have on channel partners? If the promised streamlining of channel programs takes place, it could reduce the cost and time investment required of solution providers. Partner satisfaction around Cisco’s programs is typically high, but a reduction in red tape surely would be appreciated by the channel.

The apprehension surrounding the changes may have played a part in the company losing some of its well respected and long-term channel executives this year. Channel Marketing VP Luanne Tierney and Christopher Hoff, director of cloud and virtualization solutions, jumped to Juniper Networks, and Senior Director of Worldwide Channels Communications Director Lang Tibbils left to join McAfee earlier this week. While Cisco partners may see some different faces on the vendor’s management team, the resulting changes could energize a number of the industry’s channel programs.

Cutbacks Hit Extreme Networks
With a goal of lowering its annual operating costs by approximately $20 million, Extreme Networks announced its restructuring plan this week, which includes the elimination of 110 positions (16 percent of its worldwide workforce). The goal is to consolidate its software engineering resources into current facilities to lower costs and, at the same time, enhance its R&D investment for future growth.

These changes are seen as another step in the company’s long-term rejuvenation, as Extreme executives continue to enhance the vendor’s channel programs, product line and competitive position. "In Q3 we announced a shift in our strategic focus to target select high-growth vertical markets by aligning designated sales and marketing resources to bring more focus to these market verticals," said Oscar Rodriguez, president and CEO for Extreme Networks. "Now, we are rebalancing employee levels in all organizations to drive down fixed costs, while continually working to lower variable operating costs to ensure market competitiveness.”

Hopefully, both the debt discussions and current vendor restructuring trend will come to a quick close, allowing the economy to make a full recovery. Only time will tell.

One Last Bit of News…
With a whopping 44% of the vote, the CompTIA Breakaway Wildcard presentation is…drum roll please…

Business Continuity Planning: the Top IT priority for 2011! Lester Keizer, CEO of XiloCore, will discuss reasons why Forrester Research listed business continuity and disaster recovery as top IT concerns this year. As one of the largest potential recurring revenue streams, BC/DR is an important and often overlooked opportunity for MSPs. This presentation will show you how to develop a plan for your business, as well as for your customers. Attendees will leave with sample templates of BC/DR plans, a facility profile planning kit and learn how to conduct a BC/DR presentation. Make sure you check out the session on Wednesday, August 3 from 11am to noon.

Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and industry alliances director with Autotask. Contact Brian at [email protected].