Cisco to cut 5% of workforce affecting over 4,000 jobs, adjusts revenue lower
Cisco Systems, a major player in networking equipment, said it plans to reduce its global workforce by 5 percent, affecting over 4,000 jobs. This decision comes as the company faces challenges in a difficult economic environment, marked by numerous layoffs within the tech sector this year, as per a Reuters report.
In response to the announcement, shares of Cisco declined by over 5 percent during extended trading on February 14. The company revised its annual revenue projection to a range of $51.5 billion to $52.5 billion, down from the previous estimate of $53.8 billion to $55 billion.
Cisco concluded the previous year with almost 85,000 employees, as per information available on its website, AFP reported.
Challenges in the Telecom Sector
During a conference call, CEO Charles Robbins highlighted the ongoing weak demand from telco and cable service provider customers. Analysts anticipate sustained pressure on the demand for Cisco’s products, particularly as telecom industry clients curtail spending, prioritizing the clearance of excess networking gear inventory.
Analyst Joe Brunetto from Third Bridge told Reuters there are expectations the networking hardware inventory surplus would likely be resolved in the second half of 2024 or early 2025.
Strategic Shift towards AI and Partnership with Nvidia
In efforts to boost growth, Cisco is strategically focusing on artificial intelligence. CEO Robbins announced a partnership with Nvidia, wherein the latter agreed to incorporate Cisco’s ethernet with its widely used technology in data centres and AI applications.
For the third quarter, Cisco anticipates revenue in the range of $12.1 billion to $12.3 billion, falling short of estimates pegged at $13.1 billion, according to LSEG data. The company, with 85,000 employees, previously hinted at layoffs and restructuring to concentrate on high-growth areas, as reported by Reuters earlier this month.
Cisco foresees incurring an $800 million charge on the layoffs before tax, covering severance and other costs. The majority of these charges are expected to be recognized in the first half of fiscal 2025.
In the second quarter, Cisco reported an adjusted profit of 87 cents per share and revenue of $12.79 billion, surpassing LSEG estimates.
Analysts View
Analysts suggest that the technology sector might witness a shift towards artificial intelligence, leading to potential layoffs becoming a new norm for Silicon Valley.
These job cuts, however, are not comparable to the significant downsizing observed in late 2022 and early 2023, when numerous tech companies let go of hundreds of thousands of employees, as per the AFP report. This downsizing was a consequence of the hiring surge during the pandemic, where companies expanded their workforce as daily activities transitioned to online platforms.
In a notable move, Cisco, towards the end of last year, finalised its largest-ever acquisition by agreeing to purchase the cybersecurity company Splunk in a $28 billion deal. This acquisition marks a strategic step for Cisco, primarily recognized for its routers and network equipment, bringing it into competition with industry counterparts such as Palo Alto Networks, Check Point, CrowdStrike, and Microsoft, especially in the flourishing cybersecurity sector.
(With inputs from Reuters and AFP)
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Published: 15 Feb 2024, 07:55 AM IST
Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.