Written by Benjamin Clark.

Cisco Systems, the tech giant based in San Jose, California, has announced a major workforce reduction, eliminating 7% of its employees. This marks the second significant round of layoffs this year as the company strategically shifts its focus towards the booming sectors of artificial intelligence (AI) and cybersecurity. Although Cisco has remained tight-lipped about the exact number of jobs being cut, with a workforce of 84,900 employees as of July 2023, it’s estimated that around 5,900 positions are on the chopping block.

This move follows Cisco’s earlier decision in February to cut about 4,000 jobs. The latest layoffs underscore the company’s commitment to redirecting its resources towards rapidly growing technological fields. In June, Cisco announced a $1 billion investment in tech startups like Cohere, Mistral, and Scale, aiming to develop dependable AI products. Additionally, the company has entered into a strategic partnership with Nvidia to build robust infrastructure for AI systems, signaling a clear shift in priorities.

These layoffs come on the heels of Intel Corp.’s decision to cut approximately 15,000 jobs as it struggles to stay competitive against industry rivals Nvidia and AMD. While Intel’s earnings report left investors disheartened and its stock price plummeting, Cisco’s shares enjoyed a 6% increase in after-hours trading, reflecting investor confidence in its new strategic direction.

A Mixed Financial Report: Earnings Down, Stock Up

Cisco’s financial performance for the fiscal fourth quarter, which ended on July 27, 2023, painted a mixed picture. The company reported earnings of $2.16 billion, or 54 cents per share, representing a steep 45% decline from the previous year’s $3.96 billion, or 97 cents per share. When excluding special items, Cisco’s adjusted earnings were 87 cents per share, slightly above analysts’ expectations of 85 cents per share, according to FactSet.

Revenue also took a hit, dropping 10% to $13.64 billion from $15.2 billion in the same period a year ago. However, despite the drop in revenue, Cisco’s stock price saw a notable uptick, reflecting investor optimism about the company’s future prospects. The market appears to have responded favorably to Cisco’s aggressive pivot towards AI and cybersecurity, viewing it as a forward-looking move that aligns with the most promising trends in the tech industry.

Looking ahead, Cisco has forecasted adjusted earnings of 86 cents to 88 cents per share for the current quarter, with expected revenue ranging between $13.65 billion and $13.85 billion. These projections are in line with analysts’ expectations, who anticipate earnings of 85 cents per share on revenue of $13.74 billion. This cautious yet optimistic outlook suggests that while Cisco is navigating choppy waters, it is steering towards a promising future in emerging tech sectors.

Cybersecurity: The New Frontier for Cisco

As part of its strategic pivot, Cisco has made significant strides in the cybersecurity arena. In March, the company launched its Cybersecurity Readiness Index, a tool designed to help businesses assess their resilience against cyberattacks. This initiative is part of Cisco’s broader effort to establish itself as a leader in cybersecurity, a field that is becoming increasingly critical as digital threats continue to evolve.

Cisco’s recent acquisition of Splunk, a cybersecurity firm, further solidifies its commitment to this sector. The integration of Splunk’s capabilities into Cisco’s existing infrastructure is expected to enhance the company’s ability to offer comprehensive cybersecurity solutions. Edward Jones analyst David Heger noted that Cisco is beginning to see a recovery in demand, with product orders up by 6%, excluding those from the Splunk acquisition. He emphasized that the company’s ongoing restructuring efforts will help mitigate the impact of increased interest expenses associated with the financing of the Splunk deal, while also streamlining the combined workforces.

Heger’s analysis suggests that Cisco’s focus on cybersecurity is not just a reactionary move but a calculated strategy to capitalize on a market with immense growth potential. By aligning its resources and talent towards this goal, Cisco is positioning itself as a key player in a field that is likely to see significant demand in the coming years.

Our Take

Cisco’s decision to cut thousands of jobs while doubling down on AI and cybersecurity is a bold move, but it’s one that comes with significant risks. On one hand, the shift towards these rapidly growing sectors could secure the company’s future in an increasingly competitive tech landscape. On the other hand, the loss of nearly 6,000 jobs raises concerns about the human cost of this transition. While it’s easy to get caught up in the excitement of AI and cybersecurity, it’s important to remember that behind these strategic decisions are thousands of lives disrupted by layoffs.

Moreover, as Cisco pours billions into AI and cybersecurity, the question remains whether these investments will pay off as expected. If they do, Cisco could emerge as a leader in these fields. But if they don’t, the company could find itself struggling to regain its footing in a fast-changing industry. This gamble, while necessary, highlights the precarious nature of the tech world, where innovation often comes at the expense of stability. As we move forward, it will be crucial to keep a close eye on how these developments unfold and what they mean for the future of the tech industry.