Cisco Systems (CSCO) shareholders are in for yet another high-level shakeup during a critical time as the technology company refocuses on higher-growth business lines. Shares were down in early trading Tuesday on the news that four key engineers are leaving the firm, just as the company is in the process of reorganizing its engineering group.
"It certainly isn't good news -- no high-level turnover is positive -- but I view it more as a story of resource allocation and return on investments," said Jack Mohr, Director of Research for Jim Cramer's Action Alerts Plus portfolio -- which holds Cisco shares. There have been numerous management departures announced in the year since new CEO Chuck Robbins took the helm last June.
The four departing engineers were the founders of Insieme, Cisco's spin-in, which developed the Nexus 9000 series data-center hardware.
"The legacy incentive system exclusive to the departing executive team appears fundamentally misaligned with the company's strategic direction, and the areas of highest return which include cloud, collaboration and security divisions, which offer high-growth and high-margins, deserving a larger piece of the company's investment pie," said Mohr.
The technology giant announced at the end of March that it is reshaping its engineering group into four new areas, comprising: Networking, Market Segments and Solutions; Security; IoT and Applications; and Cloud Services and Platform.
"We believe several executives (including the Insieme four) were disappointed with the reorganization and new Networking group leadership (David Goeckeler), and thus resigned," said Oppenheimer analysts in a note Monday.
Oppenheimer analysts believe that the company has a "deep management bench" and is generally unaffected by the departure of key executives. The firm maintained its Outperform rating for Cisco.
Meanwhile, analysts with Nomura kept a Neutral rating, but questioned whether the changes could have been cleaner, noting that this is the "third or fourth set of executive departures or reassignments since the ascension of Chuck Robbins to the CEO role last year."
In a research note Tuesday, Nomura analyst Jeffrey Kvaal said: "The nearly 12 months between Mr. Robbins' appointment and these latest departures offers the possibility the core leadership team was not as tightly aligned on strategy and vision as one would hope during a wrenching transition toward cloud architectures at both Cisco's enterprise and telco customers."