Cisco Systems has announced plans to reduce its global workforce by 5%, equating to over 4,000 jobs, while revising its annual revenue target downwards amidst challenges posed by a challenging economic landscape. The networking equipment maker’s shares experienced a decline of over 5% in extended trading on Wednesday following the adjustment of its revenue forecast.
The company has lowered its annual revenue projection to a range of $51.5 billion to $52.5 billion, down from the previously anticipated range of $53.8 billion to $55 billion. CEO Charles Robbins attributed the decision to persistently weak demand from telecommunications and cable service provider clients, reflecting ongoing economic uncertainties.
Analysts anticipate continued pressure on demand for Cisco’s products, particularly as clients within the telecom sector prioritize clearing excess inventory of networking equipment over new purchases. Joe Brunetto, an analyst at Third Bridge, projects that the inventory surplus in networking hardware is likely to dissipate by the latter half of 2024 or early 2025.
Amidst these challenges, Cisco is strategically focusing on artificial intelligence (AI) initiatives and forging partnerships to stimulate growth. CEO Robbins revealed a collaboration with Nvidia, wherein Nvidia will utilize Cisco’s ethernet technology alongside its own offerings, particularly in data centers and AI applications.
For the third quarter, Cisco expects revenue to range between $12.1 billion and $12.3 billion, falling short of estimates of $13.1 billion according to LSEG data. The company, which currently employs 85,000 individuals, had previously signaled plans for layoffs and organizational restructuring to concentrate efforts on high-growth segments.
As part of the workforce reduction measures, Cisco anticipates incurring an $800 million charge before tax, primarily consisting of severance and associated costs. The majority of these charges are expected to be recognized in the first half of fiscal 2025.
Despite these challenges, Cisco reported second-quarter results that exceeded analyst expectations, with an adjusted profit of 87 cents per share and revenue of $12.79 billion, surpassing LSEG estimates.
