Shares of Cisco Systems Inc. rose in extended trading today after the networking company said it’s cutting 7% of its global workforce and reported quarterly financial results that topped analysts’ estimates.
The layoffs, which are the company’s second round of job cuts this year, are part of a restructuring plan that will result in about $1 billion of pretax charges. The plan will enable the company to double down on what it believes are key growth opportunities in areas such as cybersecurity and artificial intelligence, officials said.
According to Cisco, $700 million to $800 million of those charges will be recognized in the current quarter, with the rest set to be spread across its fiscal 2025 year.
Cisco had already announced one major round of layoffs back in February, when it said it was eliminating about 4,000 jobs, or 5% of its workforce. This second round of job cuts will be even more significant. Cisco, which is based on San Jose, California, did not specify the exact number of positions that will be axed, but it had 84,900 employees as of July 2023, so based on that figure, it’s likely that about 5,900 jobs will be lost.
Cisco, once the world’s most valuable publicly traded company, has been struggling recently, with revenue falling for a third successive quarter. Its core networking hardware business, which includes Ethernet switches for data centers and routers for offices and homes, has endured a long period of decline as large enterprise customers increasingly run their most important computing workloads and applications in the cloud. The company has pivoted by moving into networking and security software in order to diversify its revenue stream and bring in more recurring sales.
In its fiscal fourth-quarter results, the company delivered earnings before certain costs such as stock compensation of 87 cents per share, coming in just above Wall Street’s target of 85 cents. Revenue fell 10% from a year earlier, to $13.64 billion, beating the consensus estimate of $13.54 billion. Net income plunged 45%, to $2.2 billion.
For the full year, revenue fell 6% to $53.8 billion, representing the first annual decline since 2020.
Cisco expects its revenue decline to continue into the coming quarter. For the first quarter of fiscal 2025, the company is looking for sales of between $13.65 billion and $13.85 billion, compared with $14.7 billion one year earlier. The forecast is a tad better than expected, though, as Wall Street is modeling first-quarter sales of $13.74 billion.
In terms of earnings, Cisco is modeling a profit of 86 to 88 cents per share, versus the consensus estimate of 85 cents.
Cisco’s traditional networking business is the main reason for its decline. Revenue there fell by 28% from a year earlier, to just $6.8 billion, the company said.
On the other hand, Cisco’s efforts in security and collaboration are doing a bit better. The company reported security revenue of $1.8 billion in the quarter, up 81% from a year earlier, thanks largely to its acquisition of Splunk Inc., which contributed around $960 million in sales. Meanwhile, collaboration revenue, which is primarily derived from the Webex service, was flat at just over $1 billion.
“We delivered a strong close to fiscal 2024,” said Cisco Chair and Chief Executive Chuck Robbins (pictured). “In our fourth quarter, we saw steady customer demand with order growth across the business as customers rely on Cisco to connect and protect all aspects of their organizations in the era of AI.”
In June, Cisco revealed it’s planning to invest more than $1 billion in AI startups such as Cohere Inc., Mistral and Scale AI Inc. in order to help it develop reliable AI products. In line with that initiative, Cisco recently announced a partnership with Nvidia Corp. to build networking infrastructure for AI systems.
Investors reacted positively to news of the layoffs and the upbeat financial report, with Cisco’s stock gaining more than 5% after hours. Prior to the report, the company’s stock was down 10% in the year to date, compared with a 14% gain in the broader Nasdaq index.
Cisco isn’t the only struggling technology giant to announce a major restructuring initiative. Last week, the iconic chipmaker Intel Corp. said it is planning to cut around 15,000 jobs to try to turn its business around and better compete in the AI chip business, where it trails rivals such as Nvidia and Advanced Micro Devices Inc. On Monday, Dell Technologies Inc. disclosed plans to restructure its sales and marketing groups, though it didn’t announce the number of layoffs, believed to be in the thousands.