Cisco Systems Announces 7% Global Workforce Reduction

On Wednesday, Cisco Systems (CSCO) announced that it is experiencing a rebound in demand for its networking equipment and will cut 7% of its global workforce to refocus on high-growth areas, including AI and cybersecurity. The news and an upbeat revenue forecast for the current quarter saw Cisco shares rise by 5% in extended trading.

Shift from Networking Equipment to Growth Sectors:

CEO Chuck Robbins explained during an analyst call that the company is transitioning to a more normalized demand environment after overcoming supply chain disruptions and a post-pandemic slowdown. Cisco has gradually reduced its dependence on its traditional networking equipment business, which has faced challenges recently.

Earlier in February, Cisco announced a 5% reduction in its global workforce, amounting to over 4,000 jobs. The latest round of layoffs, announced on Wednesday, confirms a report from Reuters last week and signals a continued focus on restructuring.

Financial Impact and Restructuring Costs:

Cisco estimates it will incur pre-tax charges of up to $1 billion related to the restructuring plan, with $700 million to $800 million of these costs expected to be recognized in the first quarter.

The layoffs are intended to help Cisco maintain its focus on growth sectors like software, services, AI, and cybersecurity while reducing its reliance on hardware.

Strong Financial Performance and Future Prospects:

Cisco’s first-quarter revenue is projected to be between $13.65 billion and $13.85 billion, surpassing analysts’ average expectation of $13.71 billion.

In the fourth quarter ended July 27, Cisco reported revenue of $13.64 billion, slightly above the estimated $13.54 billion. The company’s adjusted profit per share came in at 87 cents, exceeding the estimate of 85 cents.

Strategic Acquisitions and Investments:

To further diversify and capitalize on the AI boom, Cisco acquired cybersecurity firm Splunk last year for approximately $28 billion, marking its largest deal ever. Additionally, in June, Cisco launched a $1 billion fund to invest in AI startups, including companies like Cohere, Mistral AI, and Scale AI.

The strategic moves reflect Cisco’s commitment to evolving its business model and securing its position in the rapidly growing fields of AI and cybersecurity.