Cisco Systems (CSCO.O) has announced that it will be reducing its global workforce by 5%, which is equivalent to more than 4,000 jobs. This decision was made due to a tough economic environment that has resulted in numerous layoffs by tech firms this year. The company has also lowered its annual revenue target to a range of $51.5 billion to $52.5 billion, down from the earlier projection of $53.8 billion to $55 billion. As a result, the shares of the networking equipment maker fell more than 5% in extended trading on Wednesday.
During a conference call, CEO Charles Robbins said, “We also continue to see weak demand with our telco and cable service provider customers.” Analysts predict that demand for Cisco’s products will remain under pressure, as clients in the telecom industry are restricting spending. They are prioritizing clearing their excess inventory of networking gear, which has led to a pile-up of networking hardware inventory. Joe Brunetto, an analyst at Third Bridge, said that this pile-up should resolve in the second half of 2024 or early 2025.
Meanwhile, Cisco is focusing on artificial intelligence and has partnered with Nvidia to boost growth. CEO Robbins said that Nvidia has agreed to use Cisco’s ethernet with its own technology that is widely used in data centers and AI applications. Cisco expects third-quarter revenue between $12.1 billion and $12.3 billion, which is below estimates of $13.1 billion, according to LSEG data. The company, which has 85,000 employees, was planning layoffs and restructuring to focus on high-growth areas, as reported by Reuters earlier this month. Cisco will incur a charge of $800 million on the layoffs before tax consisting of severance and other costs. It expects to recognize the majority of the charges in the first half of fiscal 2025. In the second quarter, Cisco recorded an adjusted profit of 87 cents per share and revenue of $12.79 billion, both above LSEG estimates.