Cisco Systems has announced a significant restructuring plan that will result in a 7% reduction of its global workforce, marking the company’s second major layoff this year. This decision comes as part of a broader effort to focus on key growth areas such as software, artificial intelligence (AI), and cybersecurity while also aiming to drive operational efficiencies.
The restructuring plan, revealed few days ago, is expected to affect approximately 6,000 employees, a continuation of the company’s strategy to streamline operations in response to ongoing challenges in its core business segments.
Earlier this year, in February, Cisco had already laid off 5% of its workforce, equivalent to more than 4,000 jobs. These layoffs reflect the company’s shift away from traditional hardware products like switches and routers towards more profitable sectors.
Cisco has estimated that it will incur pre-tax charges of up to $1 billion due to the restructuring, with a substantial portion of these costs—between $700 million and $800 million—expected to be recognised in the first quarter. These charges are linked to severance packages, facility closures, and other associated costs as the company realigns its resources to focus on more lucrative areas.
Michael Ashley Schulman, Chief Investment Officer at Running Point Capital, commented on the layoffs, noting that Cisco’s strategy allows it to “maintain focus on growth areas such as software, services, AI, and cybersecurity, while balancing its financial obligations.”
This shift in focus also involves reducing the company’s reliance on hardware products, which have seen declining sales as businesses increasingly migrate to cloud-based solutions.
The announcement of the layoffs coincides with Cisco’s decision to lower its annual revenue target. The company reported revenue of $13.64 billion for the fourth quarter ending July 27, slightly above the estimated $13.54 billion.
However, this marks the third consecutive quarter of declining sales, primarily due to challenges in its core networking business. The downturn in sales is attributed to the broader industry trend of businesses shifting their operations to the cloud, reducing the demand for traditional networking equipment.
In response to these market challenges, Cisco has been aggressively investing in new growth areas. Last year, the company made its largest acquisition to date, purchasing cybersecurity firm Splunk for $28 billion. This move is part of Cisco’s strategy to diversify its offerings and reduce its dependence on one-time equipment sales by expanding its subscription-based services.
In addition to the Splunk acquisition, Cisco also launched a $1 billion fund in June to invest in AI startups. The fund aims to capitalise on the growing demand for AI technologies by supporting innovative companies like Cohere, Mistral AI, and Scale AI. This investment is seen as a critical step in positioning Cisco as a leader in the AI sector, which is expected to drive significant growth in the coming years.
Cisco’s restructuring and investment strategies reflect broader trends in the tech industry, where many companies are facing similar challenges. The focus on AI, software, and cybersecurity is not unique to Cisco; it is a response to the shifting demands of the market and the need for companies to adapt to new technologies and business models.
The announcement of Cisco’s layoffs is part of a larger wave of job cuts across the tech industry. Several major companies, including Intel, Intuit, and UKG, have also announced significant layoffs in recent months as they grapple with economic challenges and the need to refocus their operations.
Intel, for example, recently revealed plans to cut 15,000 jobs, representing a 15% reduction in its workforce. The layoffs come in response to a 20% drop in the company’s share price, driven by a $1.6 billion loss in the April-June period and production issues with its Meteor Lake processors. Intel’s challenges are further compounded by export restrictions to China, which have significantly impacted its business operations.
Similarly, Intuit announced in July that it would lay off 1,800 employees, primarily targeting low performers and executives, as part of a strategy to sharpen its focus on AI-driven products. The company has indicated that these layoffs are not intended to cut costs but rather to align its workforce with its strategic priorities.
These layoffs reflect a broader trend in the tech industry, where companies are being forced to make tough decisions in response to market pressures, shifting customer demands, and the need to invest in new technologies.
