Cisco cuts thousands more jobs, but upbeat on 2025
Cisco Systems this week announced plans to cut 7% of its workforce, its second round of job cuts this year, but the news came alongside a broadly positive set of full-year numbers.
August 16, 2024
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The networking giant reported a decline in quarterly and full-year revenues, but its headline figures came in ahead of expectations, and the future looks fairly bright. Like many in this industry, it is reshaping its business to capitalise on the promise of AI – including some newly announced staffing changes and the ongoing integration of Splunk – and an end to depressed customer spending looks to be in sight.
Cisco's top line fell by 10% in the fourth quarter of its last financial year to US$13.6 billion, but that figure was above the high-end of its guidance range. In the full year revenues were down 6% to $53.8 billion.
However, it sees a return to growth in the current financial year, putting its revenue guidance for fiscal 2025 at $55 billion-$56.2 billion; at the high end, that would be an increase of almost 4.5% on 2024.
Although product revenues were down by 15% on-year in Q4 – an increase of 6% in service revenues was not enough to offset that – product orders ticked upwards. Cisco said orders during the quarter grew by 14%, or 6% excluding the recently-acquired Splunk; "indicating inventory digestion largely completed as expected; starting to see normalization of demand patterns," its analyst presentation reads. Essentially, customers are starting to spend again.
It comes as no surprise that a key area for renewed spending is in artificial intelligence. Cisco noted that it is seeing continued AI infrastructure momentum, having booked around $1 billion worth of AI orders to date with webscale customers. It expects to add another $1 billion of AI product orders in fiscal 2025.
"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," said Cisco CEO Chuck Robbins, in his comments alongside the numbers.
In a separate blog post, Robbins also detailed some key executive and organisational changes that it believes will enable to support customers in the AI era.
Chief among the changes is the departure of long-serving Cisco executive Jonathan Davidson from his role as head of the firm's Networking team; he is now billed as an advisor to Robbins. As a result, Cisco is now bringing together its Networking, Security, and Collaboration teams as a single unit under the leadership of Jeetu Patel, who was previously responsible for Security and Collaboration. He is now Cisco's EVP and Chief Product Officer.
In the fullness of time, Cisco will also integrate the Splunk product line into the new business unit. Cisco made headlines its $28 billion acquisition of data analytics and cybersecurity firm Splunk earlier this year. It is still working to fully integrate the business.
"This new organization will help us accelerate our product innovation and bring our portfolio together in a more integrated way than ever before," Robbins said.
All of the above indicates that Cisco has a clear plan for where it is heading and how to get there. But that will be scant consolation for the thousands of employees who are about to be shown the door.
Cisco announced in an SEC filing that it will shed approximately 7% of its global workforce as part of a restructuring plan that will enable it to invest in key growth opportunities and drive business efficiencies. It did not provide actual numbers, but based on a workforce of 84,900 this time last year, we're looking at just shy of 6,000, although that figure does not take into account the fact that Cisco detailed around 4,000 job cuts exactly six months ago.
As Light Reading reported at the time, the company attributed that move to a later-than-expected recovery in network operator spending.
The new headcount reduction plan will cost Cisco around $1 billion in severance packages and other related charges. It will recognise $700 million-$800 million of the total in its first quarter numbers.
But while the job cuts will dominate Cisco's media coverage this week, and will have a big impact on Q1, there are also plenty of positives. Going forward, it will be all about AI and – Cisco hopes – customers spending money to make sure they are ready for it.
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