Cisco Systems To Cut Thousands Of Jobs Amidst Slowdown In Tech Spending

Cisco Systems Inc., the largest maker of networking equipment, has announced plans to cut thousands of jobs following a slowdown in corporate tech spending that has affected its sales growth.

The company’s restructuring plan will impact approximately 5% of its workforce, which amounts to around 4,000 jobs. Cisco, which had almost 85,000 employees last year, expects the restructuring to cost about $500 million.

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The announcement of job cuts came alongside a forecast that fell short of Wall Street’s expectations, causing Cisco shares to slide. According to chief executive officer Chuck Robbins, customers are becoming more cautious about the state of the economy, leading them to delay orders and reevaluate their equipment needs.

This trend is not unique to Cisco, as many other tech companies have also been scaling back. In fact, Layoffs.fyi, a platform tracking tech layoffs since the pandemic, reports that nearly 35,000 job cuts have been announced in 2024.

Following the weak forecast, Cisco shares fell by as much as 4.2% to $48.19 on Thursday. Prior to this decline, the stock had remained relatively unchanged in 2024.

The company now expects sales to range between $12.1 billion and $12.3 billion in the fiscal third quarter, which ends in April. This falls short of the average analyst estimate of $13.1 billion. Cisco’s adjusted gross margin, which represents the percentage of sales remaining after production costs are deducted, is projected to be 66% to 67% this quarter.

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In the fiscal second quarter, which ended on January 27, Cisco reported a 6% decline in revenue to $12.8 billion. This marked the company’s first contraction in three years. Profit, excluding certain items, was 87 cents a share. Analysts had estimated revenue of $12.7 billion and earnings of 92 cents a share. Orders also declined by 12% in the same quarter. Unfortunately, Cisco does not anticipate a quick recovery in the second half of the year as previously hoped.

To address the sales volatility, Cisco’s CEO, Chuck Robbins, aims to offer more networking services, particularly analytics and security features delivered over the internet. The company intends to focus more on subscription revenue rather than one-time sales of large networking gear.

As part of this strategy, Cisco is in the process of acquiring data-crunching software maker Splunk Inc. for $28 billion. The deal is expected to close as early as this quarter.

Despite the impending job cuts, Cisco has been working with chipmaker Nvidia Corp. to facilitate the deployment of AI (artificial intelligence) systems for corporate clients. By partnering with Nvidia, Cisco hopes to expand the use of AI technology beyond the typical large data center owners, such as Microsoft Corp. and Alphabet Inc.’s Google. Cisco has already reported approximately $1 billion in AI-related orders.

While the current economic climate has prompted Cisco and other tech companies to make difficult decisions, the industry remains optimistic about the future. By adapting its business strategy and embracing emerging technologies, Cisco aims to navigate through the challenges and continue to provide innovative networking solutions to its customers.