Cisco Systems Inc. is set to lay off thousands of employees in a second major job cut this year, as it adapts to a challenging economic environment. The layoffs could match or exceed the 4,000 positions eliminated in February. The company, which employed around 84,900 people as of mid-2023, is expected to unveil the details of these cuts along with its fourth-quarter financial results, potentially as soon as Wednesday.
This news has already impacted Cisco’s stock, which fell nearly 1% after the announcement and has dropped over 9% this year. The company has not yet commented on the specifics of the layoffs.
Strategic Shift to Cybersecurity and AI
The upcoming layoffs are part of Cisco’s broader strategy to focus on higher-growth sectors like cybersecurity and artificial intelligence (AI). Known for its essential networking equipment, Cisco has been facing challenges with decreasing demand and supply chain disruptions.
To navigate these issues, Cisco has been diversifying its business. A pivotal move was the $28 billion acquisition of cybersecurity firm Splunk, finalized in March. This acquisition is designed to reduce Cisco’s reliance on hardware sales by bolstering its subscription-based services and enhancing its cybersecurity portfolio.
AI Investments and Cost-Cutting
Cisco’s investment in AI is another cornerstone of its new strategy. In May, the company set a goal of $1 billion in AI product orders by 2025. To support this, Cisco launched a $1 billion fund in June to invest in AI startups such as Cohere, Mistral AI, and Scale AI. Over the past few years, Cisco has made 20 AI-focused acquisitions and investments, reflecting its commitment to integrating AI into its offerings.
However, these investments come with a cost. The need to balance substantial AI spending with operational costs has contributed to the recent layoffs. There are also concerns about whether the returns on these AI investments will meet Cisco’s expectations, a situation mirrored across the tech industry.
Partnership with Nvidia
In addition to its internal efforts, Cisco has partnered with Nvidia to develop and market Ethernet networking solutions designed for AI applications. This partnership aims to enhance Cisco’s AI capabilities and solidify its position in this fast-evolving field.
Broader Trend of Tech Industry Layoffs
Cisco’s latest layoffs reflect a broader trend in the tech sector, where companies are cutting jobs to manage the financial demands of heavy investments in new technologies. Data from Layoffs.fyi shows that over 126,000 tech workers have been laid off across 393 companies since the start of the year.
This trend follows similar actions by other tech giants. For instance, Intel announced in August that it would reduce its workforce by over 15%, impacting around 17,500 employees, as part of its strategy to revamp its struggling manufacturing sector. The tech industry, traditionally seen as a stable source of employment, is now facing significant upheaval.
Looking Ahead for Cisco
As Cisco moves forward, its focus on cybersecurity and AI presents both opportunities and challenges. The company is betting on these high-growth areas to drive future success, but the path is fraught with risks. The upcoming layoffs highlight the difficult choices companies must make as they transition towards new technologies.
Cisco’s ability to successfully navigate this period of transformation will be closely monitored by investors, employees, and industry analysts. The company’s efforts to shift away from traditional hardware sales towards more dynamic growth areas will be crucial in determining its future success in an increasingly competitive market.
