As Cisco slashes its workforce and ramps up its new product lines to keep up with new technologies, it will face initially low margins and slower growth rates, and increased competition, Alkesh Shah of Evercore Partners told CNBC.
"The numbers that we've heard of a 7,000 to 10,000 head count reduction are consistent with the billion dollars in operating expense savings Cisco is targeting for next year," Shah said. "We do like that they are heading towards that plan."
He noted there's an overall slowdown in demand because of the macro picture, as economies around the world slow down. He said Cisco is reducing it's costs because it is going through major transitions and dealing with increased competition and rivalry by Brocade and Juniper.
"Companies around the world have spent the last 40 years building up their IT, their technology infrastructure, and now they're going to spend the next 20 years moving that technology infrastructure to the cloud and what that change does is it means that the top of products that Cisco sells are going to have to change, so therefore they need new products," Shah told CNBC.
He added that those new products will initially have low margins and slower growth rates, which in turn will allow for increased competition.
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Alkesh Shah owns shares of Cisco.