In response to ongoing challenges in the current economic climate, Cisco Systems (CISCO) has revealed plans to cut its global workforce by more than 4,000 jobs, equivalent to a 5% reduction, while simultaneously lowering its annual revenue forecast. The decision comes as the networking equipment maker faces weak demand from its telecommunications and cable service provider clients, reflecting broader economic uncertainties in the tech industry.
Economic Climate and Market Response
Cisco’s CEO, Charles Robbins, explained that the company is grappling with decreased demand from telco and cable service provider customers, resulting in a strategic realignment. The announcement led to a more than 5% drop in Cisco’s shares during after-hours trading, underlining the market’s response to the challenging conditions.
Revised Annual Revenue Target and Inventory Challenges
The revised annual revenue target for Cisco now ranges between $51.5 billion and $52.5 billion, down from the initial projection of $53.8 billion to $55 billion. The company attributes the downward adjustment to ongoing challenges, including excess inventory of networking gear. Analysts anticipate a resolution to the networking hardware inventory backlog in the second half of 2024 or early 2025.
Strategic Shift Towards Artificial Intelligence
In a strategic move, Cisco is shifting its focus towards artificial intelligence (AI) and has entered into a partnership with Nvidia to drive growth. This collaboration involves integrating Cisco’s ethernet with Nvidia’s widely used technology in data centers and AI applications. The move signals a broader trend in the industry, as tech companies seek new avenues for growth amidst evolving market dynamics.
Future Outlook and Restructuring Efforts
While Cisco reported second-quarter results that exceeded estimates, with an adjusted profit of 87 cents per share and revenue of $12.79 billion, the company anticipates challenges in the coming months. The third-quarter revenue forecast falls short of analysts’ estimates, ranging between $12.1 billion and $12.3 billion. As part of its restructuring efforts, Cisco plans to focus on high-growth areas, anticipating an $800 million charge related to layoffs before tax, covering severance and other costs, with the majority recognized in the first half of fiscal 2025.
