Key Points
- Cisco announces a 7% global workforce reduction, focusing on AI, cybersecurity, and software.
- After inventory issues were resolved, the company reported a rebound in demand for networking equipment.
- Cisco’s restructuring will result in up to $1 billion in pre-tax charges, most of which will be recognized in Q1.
- The company forecasts first-quarter revenue above analysts’ expectations, between $13.65 billion and $13.85 billion.
Cisco Systems (CSCO.O) reported a rebound in demand for its networking equipment. They announced a 7% reduction in its global workforce as part of a strategic shift towards high-growth areas like artificial intelligence (AI) and cybersecurity. The news, revealed on Wednesday, sent Cisco’s shares up by 5% in extended trading, following the company’s optimistic revenue forecast for the current quarter.
CEO Chuck Robbins noted that the company is returning to a “more normalized demand environment” as inventory issues have subsided. “Inventory digestion is complete, and we’re now returning to a more normalized demand environment,” Robbins said during a call with analysts.
Cisco, headquartered in San Jose, California, has been striving to reduce its dependency on its core networking equipment business. It has faced challenges due to supply chain disruptions and waning post-pandemic demand. The company had announced a 5% workforce reduction in February, amounting to over 4,000 job cuts. The latest round of layoffs will bring the total reduction to 7% as Cisco focuses on growth areas.
The restructuring will result in pre-tax charges of up to $1 billion, with $700 million to $800 million expected to be recognized in the first quarter of the fiscal year. According to Michael Ashley Schulman, Chief Investment Officer at Running Point Capital, these layoffs are designed to help Cisco “maintain focus on growth areas such as software, services, AI, and cybersecurity while balancing its financial obligations and reducing the percentage of hardware in its product mix.”
According to LSEG data, Cisco’s revenue forecast for the first quarter is between $13.65 billion and $13.85 billion, surpassing analysts’ average expectations of $13.71 billion. This positive outlook reflects Cisco’s strategic efforts to diversify and capitalize on the AI boom.
In a significant move to enhance its cybersecurity capabilities, Cisco agreed to acquire cybersecurity firm Splunk for approximately $28 billion last year, marking its largest deal to date. In June, Cisco launched a $1-billion fund to invest in AI startups, including Cohere, Mistral AI, and Scale AI.
For the fourth quarter, which ended on July 27, Cisco reported revenue of $13.64 billion, slightly above the estimated $13.54 billion. The company’s focus on high-growth sectors like AI and cybersecurity, coupled with strategic acquisitions and investments, signals a robust strategy to maintain its competitive edge in the rapidly evolving tech landscape.
