Cisco cut thousands of jobs as customers reduced spending due to concerns over the global economy and slower-than-expected product installations.
On Wednesday, Cisco confirmed reports of a 5% reduction of its workforce, which amounts to more than 4,000 jobs, to "align expenses and investments to the current environment." The company acknowledged the job cuts after reporting mixed financial results, including a 6% drop in revenue year over year for the fiscal second quarter ending in January.
A 12% drop in networking revenue significantly contributed to the company's overall revenue decline. Most of the companies holding back on spending were cloud service providers and telecommunication companies, Cisco CEO Chuck Robbins said.
"There's some macro[economic] uncertainty," Robbins told financial analysts during the company's earnings call. "Customers are pushing things out and putting a little more scrutiny on them."
Chuck Robbins
Robbins did not specify the reasons for the economic concerns affecting spending. Possibilities include high interest rates globally that could lead to a recession in some countries.
Another reason for lower spending was an overabundance of network infrastructure. Many enterprises were still deploying Cisco product shipments delayed by supply chain restraints brought on by the pandemic.
Robbins said he expected companies deploying delayed shipments to resume buying in the 2025 fiscal year that starts in August. For those concerned with macroeconomic conditions, "we're going to have to wait and see."
The reduction in spending forced Cisco to lower its revenue forecast for the 2024 fiscal year for a second time. The company expects to end the year with revenue between $51.5 billion and $52.5 billion. In November, the company's guidance was from $53.8 billion to $55 billion, lower than the first forecast in July.
Cisco faces stiff competition
Cisco's lower-than-expected revenue was partly due to competitive pressure from much smaller networking companies, such as Arista Networks. Arista, which counts cloud providers as its largest customer base, reported this month a 2% revenue increase in the last fiscal quarter, to $1.54 billion.
"Everyone's taking Cisco's [networking] business because they owned it all for a long time," said Bob Laliberte, an analyst at TechTarget's Enterprise Strategy Group. "They're a company with a big target on their back."
Everyone's taking Cisco's [networking] business because they owned it all for a long time.
Bob LaliberteAnalyst, Enterprise Strategy Group
Cisco has taken steps to re-energize growth. Last September, the company announced a $28 billion deal to acquire security analytics and observability company Splunk. Cisco expects to complete the acquisition this year.
The vendor also reported this month an expansion of its Nvidia partnership to combine the chipmaker's GPUs with Cisco servers to run AI applications in data centers.
"Over the last 90 days, we began to see the pipeline for AI use cases in the enterprise begin to emerge," Robbins said to analysts. "It's early in what [enterprises] are trying to think through. But we are seeing opportunities arise."
Cisco revenues in the last fiscal quarter were $12.8 billion, and net income on a generally accepted accounting principles (GAAP) basis of $2.6 billion, or $0.65 per share -- a decrease of 3% year over year.
The company reported revenue growth in product categories outside of networking. Security and collaboration rose 3% each, and observability software for network and application monitoring was up 16%.
For the current fiscal quarter ending in April, Cisco forecasted revenue from $12.1 billion to $12.3 billion and GAAP earnings per share from $0.51 to $0.56, which are below analyst expectations.
Antone Gonsalves is an editor at large for TechTarget Editorial, reporting on industry trends critical to enterprise tech buyers. He has worked in tech journalism for 25 years and is based in San Francisco.
