Cisco cuts workforce for third time in 2 years, pursues AI
Cisco cuts its workforce by 7% and forms one unit for networking, security and collaboration to energize AI and security sales. It's the third round of layoffs since 2022.
Cisco plans to cut more than 6,000 jobs as the networking company restructures its business to focus on its fastest-growing markets: AI, cybersecurity and cloud.
Cisco reported the workforce reduction in its fiscal fourth quarter earnings release on Wednesday. Cisco expects to cut its workforce of 90,400 by 7%, or more than 6,300 jobs.
During a conference call with financial analysts, Cisco executives stressed that the layoffs were not to reduce the size of the company's payroll but to reorganize its workforce to be more successful at winning deals.
"We need to pivot more resources into the fastest-growth areas of our business, and we're doing it by finding efficiencies and then reallocating those costs," Cisco CFO Scott Herren said.
Cisco estimates pre-tax charges for the layoffs, including severance, to reach about $1 billion.
Cisco's reorganization includes creating a product group comprising networking, security and collaboration. Executive vice president Jeetu Patel will lead the group effective immediately, CEO Chuck Robbins said. Cisco will add its Splunk security business to the group "at the right time, bringing our entire product portfolio together as one team."
Jonathan Davidson, general manager and executive vice president of networking, will "step away from his current role leading Cisco networking and will now serve as an adviser to me," Robbins said in a blog post.
The latest reorganization is the second in less than two years. In November 2022, the company launched a $600 million restructuring that included unloading office space and cutting 4,000 jobs, or 5% of its workforce.
Layoffs have become a regular in the tech industry as companies ready their businesses for the red-hot AI market. As of Thursday, more than 130,482 people have received layoff notices from 398 companies since the start of the year, according to Layoffs.fyi.
"This trend seems linked to the sense of urgency created by AI transformation within the industry," said Sameh Boujelbene, an analyst for Dell'Oro Group. "Layoffs might be seen as a quick way to free up budget and redirect resources toward AI initiatives."
For the current quarter ending in October, Cisco forecasts revenue from $13.65 billion to $13.85 billion. Analysts expect revenues to be at the low end of the range.
For the fourth fiscal quarter that ended in July, Cisco reported revenue of $13.6 billion -- a 10% drop from a year ago but higher than analysts' estimates. Cisco networking revenue fell 28% in the quarter to $6.8 billion.
AI drives changes
For several years, Cisco has countered slowing sales in its traditional networking hardware by shifting toward selling software on a subscription model versus one-time sales of hardware. Part of that transition included strengthening its cybersecurity portfolio with the $28 billion acquisition of Splunk in March.
Today, Cisco is banking on AI to boost revenue and profits by reenergizing its networking business. Cisco has tightly integrated its security and observability products with its networking portfolio.
For the first time, Cisco's enterprise customers are upgrading their data centers in preparation for running AI applications, Robbins said.
Layoffs might be seen as a quick way to free up budget and redirect resources toward AI initiatives.
Sameh BoujelbeneAnalyst, Dell'Oro Group
"In some cases, they're taking some of the dollars that they've set aside for AI to actually spend it on modernizing their infrastructure in order to get ready for that," he said.
Cisco had $1 billion in AI-related infrastructure orders this year from the major cloud providers, executives said. It expects another $1 billion in orders this year, mostly for Ethernet networking and fiber optics.
In June, Cisco made a significant move into enterprise AI networking with the introduction of the Nexus HyperFabric, developed with AI chipmaker Nvidia. The combination of Cisco hardware and Nvidia GPUs and software targets enterprises that want to run AI models in their data centers.
Cisco plans to release the system for testing later this year, which places it behind other enterprise vendors that already have products in the market.
"This may be OK as most enterprises are still in the planning phases," said Jim Frey, an analyst with TechTarget's Enterprise Strategy Group. "But for those who want to get started now, they will have to look to other suppliers."
Antone Gonsalves is an editor at large for TechTarget Editorial, reporting on industry trends critical to enterprise tech buyers. He has worked in tech journalism for 25 years and is based in San Francisco. Have a news tip? Please drop him an email.
Chuck Robbins
