Cisco to cut over 4,000 jobs and lowers Annual revenue forecast

Cisco Systems (CISCO) has announced plans to reduce its global workforce by 5%, equivalent to more than 4,000 jobs, while also revising its annual revenue target downward. 

The networking equipment maker cited challenges in the current economic climate, which has witnessed substantial layoffs across the tech industry. Cisco’s shares dropped over 5% in after-hours trading following the announcement.

CEO Charles Robbins explained the decision, stating that the company continues to experience weak demand from its telco and cable service provider customers. Analysts anticipate ongoing pressure on demand for Cisco’s products as telecom clients limit spending and focus on clearing excess inventory of networking gear.

Cisco’s revised annual revenue target now stands at $51.5 billion to $52.5 billion, down from the earlier projection of $53.8 billion to $55 billion. 

The company is grappling with a networking hardware inventory backlog, and analysts predict a resolution in the second half of 2024 or early 2025.

In a strategic shift, Cisco is concentrating on artificial intelligence and has entered a partnership with Nvidia to drive growth. The collaboration involves incorporating Cisco’s ethernet with Nvidia’s widely used technology in data centers and AI applications.

While Cisco reported an adjusted profit of 87 cents per share and revenue of $12.79 billion in the second quarter, exceeding estimates, it expects challenges in the coming months. 

The company forecasts third-quarter revenue between $12.1 billion and $12.3 billion, falling short of analysts’ estimates of $13.1 billion.

As part of its restructuring efforts, Cisco is planning layoffs and a focus on high-growth areas. The company anticipates an $800 million charge on the layoffs before tax, covering severance and other costs, with the majority of charges recognized in the first half of fiscal 2025. 

Analysts suggest a broader trend in the tech sector, with potential layoffs becoming more common as the industry shifts towards artificial intelligence.