Cisco Systems recently announced that they are cutting 7% of their global workforce as they shift their focus to high-growth areas. The company is expecting to recognize pre-tax charges of up to $1 billion in connection with the plan, with $700 million to $800 million of these charges being recognized in the first quarter. This comes after Cisco had already announced earlier in the year that they would be cutting 5% of their global workforce, which amounts to more than 4,000 jobs, while also lowering their annual revenue target.
Despite the mass layoffs, Cisco’s shares were up 5% in extended trading after they forecast better-than-expected first-quarter revenue. The company expects first-quarter revenue to be in the range of $13.65 billion to $13.85 billion, while analysts on average expect $13.71 billion. As the largest maker of routers and switches that direct internet traffic, Cisco has been facing sluggish demand and supply-chain constraints in its mainstay business, prompting the company to diversify with moves such as their $28 billion buyout of cybersecurity firm Splunk in March. This acquisition is expected to reduce the company’s reliance on one-time equipment sales by boosting its subscription business.
Cisco’s CFO, Scott Herren, stated that the company remains laser-focused on growth and consistent execution as they invest in AI, cloud, and cybersecurity while maintaining capital returns. To support their growth initiatives, the company launched a $1 billion fund in June to make investments in AI startups, such as Cohere, Mistral AI, and Scale AI. Cisco has also made 20 AI-focused acquisitions and investments over the past few years. In the fourth quarter, which ended on July 27, Cisco reported revenue of $13.64 billion compared to an estimate of $13.54 billion. Additionally, their adjusted profit per share was 87 cents, exceeding the estimate of 85 cents.
Cisco’s decision to cut jobs and shift their focus to high-growth areas comes as the company aims to increase profitability and reduce its reliance on equipment sales. The company has been facing challenges such as sluggish demand and supply-chain constraints in its main business segments, leading to the need for diversification. By making investments in AI startups and acquisitions in cybersecurity, Cisco is positioning itself to capture opportunities in emerging technologies. The company’s strong financial performance in the fourth quarter and the forecast of better-than-expected revenue for the first quarter indicate that these strategic moves are yielding positive results.
The mass layoffs announced by Cisco are part of the company’s broader restructuring efforts to improve efficiency, reduce costs, and focus on areas with high growth potential. By streamlining their workforce and reallocating resources to key strategic areas, Cisco aims to drive innovation and position itself for long-term success in a rapidly evolving technology landscape. Despite the challenges posed by the current economic environment, Cisco’s continued investment in growth areas such as AI, cloud, and cybersecurity demonstrates its commitment to staying competitive and leading the market in the digital era.
Overall, Cisco’s decision to cut jobs, reduce costs, and invest in high-growth areas reflects the company’s proactive approach to adapt to changing market dynamics and drive sustainable growth. By diversifying their business and focusing on emerging technologies, Cisco is positioning itself for future success amidst ongoing challenges in the technology industry. The company’s strong financial performance and positive outlook for future revenue indicate that these strategic initiatives are aligned with its long-term goals and will contribute to its competitiveness and innovation in the years to come.
