In a significant organizational shift, Cisco Systems has declared a reduction of 7% in its global workforce, a move designed to recalibrate its strategic focus towards burgeoning sectors such as artificial intelligence, cloud computing, and cybersecurity. The San Jose, California-based technology titan, renowned for its leadership in networking hardware and software, is expected to incur pre-tax charges reaching up to $1 billion due to this downsizing effort. Of this sum, between $700 million and $800 million will be recognized in the first fiscal quarter.
This decision follows an earlier workforce reduction announced in February, where Cisco had cut 5% of its global employees, amounting to over 4,000 job losses. This earlier reduction, coupled with a revised annual revenue forecast, signaled a shift in Cisco’s strategic priorities. Despite the substantial cuts and the impact on its workforce, Cisco's stock saw a 5% increase in extended trading following the announcement of an optimistic revenue forecast for the first quarter. The company projected revenues between $13.65 billion and $13.85 billion, surpassing analysts' average expectations of $13.71 billion, according to data from LSEG.
The impetus behind this workforce reduction is Cisco’s ongoing effort to pivot from its traditional hardware-centric business model towards high-growth areas. The company has faced persistent challenges, including sluggish demand and supply chain issues, which have prompted it to seek new avenues for revenue growth. One of the key strategies to mitigate these challenges has been its $28 billion acquisition of Splunk, a prominent cybersecurity firm. This acquisition, completed in March, is expected to enhance Cisco’s subscription-based revenue streams, thereby reducing its reliance on one-time equipment sales.
In a bid to further strengthen its position in emerging technologies, Cisco launched a $1 billion investment fund in June, aimed at supporting AI startups such as Cohere, Mistral AI, and Scale AI. This initiative is part of Cisco’s broader strategy to bolster its capabilities in AI, cloud infrastructure, and cybersecurity, reflecting a deliberate shift towards these high-growth areas. Over recent years, Cisco has made a series of AI-focused acquisitions and investments, totaling 20, underscoring its commitment to expanding its footprint in this critical sector.
For the fourth fiscal quarter ending July 27, Cisco reported revenues of $13.64 billion, slightly above the estimated $13.54 billion. The company's adjusted earnings per share stood at 87 cents, exceeding the anticipated 85 cents. These financial results, coupled with the strategic investments and acquisitions, highlight Cisco’s ongoing efforts to navigate the evolving technology landscape and reposition itself for future growth.
