Cisco Layoffs Hitting More Than 4,000 Workers

This article originally appeared on Channel Futures.

Cisco layoffs will impact 5% of its workforce, or more than 4,000 employees, during its current quarter as part of a restructuring plan.

Cisco announced the layoffs along with its earnings for its fiscal 2024 on Wednesday. However, CEO Chuck Robbins didn't specifically address the cuts.

Cisco's workforce totaled 84,900 as of July 2023.

"On Feb. 14, Cisco announced a restructuring plan in order to realign the organization and enable further investment in key priority areas," the company said. "This restructuring plan will impact approximately 5% of Cisco's global workforce. Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results of approximately $800 million consisting of severance and other one-time termination benefits and other costs. Cisco expects to take the majority of these actions in the third quarter of fiscal 2024 and recognize approximately $500 million of these charges."

Last September, Cisco notified workers of layoffs impacting 350 employees in Silicon Valley as part of a rebalancing.

Cisco Layoffs Not Surprising

Joe Brunetto, an analyst at global research firm Third Bridge, said he's not surprised by the latest round of Cisco layoffs.

Related:Cisco to Acquire Splunk in $28B Deal in Bid to Boost Observability, Security

"Similar to 2023, we have seen most major tech companies lay off thousands of employees as companies look to trim down costs and focus on profitability," he said. "Not surprisingly, Cisco is cutting 5% of their global workforce as part of a restructuring to focus on high-growth areas such as artificial intelligence (Al) and software."

For its second quarter ending Jan. 27, Cisco reported a 6% year-over-year decrease in overall revenue. Profit totaled $2.6 billion, down from $2.8 billion for the year-ago quarter.

Cisco did report revenue growth in security, collaboration and observability. Total software revenue was flat year over year while software subscription revenue was up 5% over the same time period.

Total annualized recurring revenue (ARR) totaled $24.7 billion, up 6% year over year, and product ARR was up 9% year over year.

"Overall, our Q2 results continue to advance our strategic business transformation around driving higher levels of software subscriptions and ARR, both of which showed performance gains in the quarter," Robbins said. "Our pending acquisition of Splunk also further supports our transformation strategy by fueling stronger growth, expanding our portfolio of software-based solutions, and generating higher levels of ARR, with roughly $4 billion in additional ARR expected upon closing, and will make us one of the largest software companies in the world."

Customers Proceeding with Caution

Cisco is seeing a greater degree of caution and scrutiny of deals given the high level of uncertainty it's hearing from its customers, Robbins said.

"It's leading us to be more cautious with our forecast and expectations," he said.

Customers have been taking more time since the start of fiscal 2024 to deploy the elevated levels of products shipped to them in recent quarters, and this is taking longer than Cisco's initial expectations, Robbins said.

"We also continue to see weak demand with our telco and cable service provider customers," he said. "This industry has seen significant pressure and they are adjusting deployment phasing, which is weighing on our business outlook. Given these factors, we are adjusting our expenses and investments to reflect the current environment. That said, for the product categories in which we can measure customer inventory absorption, through connections to the cloud, we are seeing steady progress. However, based on conversations with customers, we still believe we are one to two quarters away from full implementation of their inventory, which as I mentioned, is longer than we expected."

Future Growth Opportunities

Robbins said he's confident about the foundational strength of Cisco's portfolio and its future growth opportunities.

"With our innovation, we deliver and enable our customers to deploy next-generation applications in a highly secure manner," he said. "As part of this, we help facilitate their growth through our products and services so that when our customers adopt new technologies, we grow alongside them. We continue to accelerate our innovation across high-growth areas. Last week at Cisco Live EMEA, we announced new capabilities in networking, furthering our vision for the Cisco Networking Cloud. We also announced several new capabilities across our security, collaboration and observability portfolios leveraging AI throughout."

To continue to capitalize on the multibillion-dollar AI infrastructure opportunity, Cisco announced the next phase in its partnership with Nvidia to offer enterprises simplified, cloud-based and on-premises AI infrastructure.

"This includes both networking hardware and software to support advanced AI workloads," Robbins said. "We are clear beneficiaries of AI adoption, and this partnership further demonstrates the central role we play in AI and the overall technology ecosystem."

In terms of Cisco's acquisition of Splunk, Robbins said given the positive progress to date on the required regulatory approvals, Cisco now expects to close the transaction late in the first quarter or early in the second quarter of calendar year 2024, which is in Cisco's fiscal third quarter.