Ritika Janiya
Cisco Systems is a great technological company that is going to cut its workforce by approximately 6,000 people, amounting to 7 percent of the workforce, due to restructuring. Cisco Systems will shift its focus towards Artificial Intelligence and cybersecurity due to the changing nature of the market. Revenues have been going down, but still, Cisco is putting itself forward in the future by banking on AI and related technologies.
Cisco Systems Inc., a technology giant in networking equipment, announced one of the biggest restructurings. The measure will see the shedding of about 6,000 jobs, which nearly makes up 7% of its workforce. Cisco is under some pressure in its core networking business and has been shifting focus to new areas like artificial intelligence and cybersecurity.
Why Layoffs?
It currently has nearly 85,000 employees, so these job cuts will affect a fair number of workers. In its filing with the Securities and Exchange Commission, the company said that it expects to incur charges up to $1 billion for severance packages and other termination benefits. Of that amount, $700 to $800 million would be recognized in the first quarter of fiscal year 2025, with the remainder accounted for throughout the year.
The core networking business of the company, which includes switches and routers, has been in trouble. Big companies’ orders for traditional networking hardware have fallen off a cliff as more and more of their operations move into the cloud. The shift hurt Cisco’s revenues and profits, forcing the company to look elsewhere for growth.
New Focus: AI and Cybersecurity
On the back of these challenges, Cisco is undergoing a severe revamp. Cisco is putting its networking, security, and collaboration divisions under one umbrella. It will be helmed by Jeetu Patel, who ran Cisco’s security and collaboration before. Patel’s promotion underscores the increased value of cybersecurity in Cisco’s strategy.
As part of the transition, Jonathan Davidson, currently the head of Cisco’s networking division, will also resign to take up an advisory role to CEO Chuck Robbins. In a post on LinkedIn, CEO Chuck Robbins credited Davidson for his contribution and added that the move was meant to reposition the company better for the future.
Not only is the company developing AI, but it is also strongly investing in cybersecurity. Last year, Cisco made waves when it acquired cybersecurity firm Splunk for a deal as huge as $28 billion, which would mark its biggest ever. The reason behind this purchase was part of Cisco’s broader strategy as it tries to diversify its streams of revenues and be visible in software and security.
More Than Just Cost-Cutting
While Chief Financial Officer Richard Herren of Cisco argues that the layoffs are not solely about cost-cutting, they might bring efficiencies across the company that will enable them to pivot resources to the fast-growing areas such as artificial intelligence, cloud computing, and cybersecurity. Herren said this move is more about positioning Cisco for long-term growth, not short-term savings.
“We’re making a meaningful shift into the products that are more AI-related,” said Chuck Robbins, the chief executive of Cisco. On the other hand, the networking solutions have been optimized for cloud-based applications, advanced infrastructure, and increased cybersecurity. Cisco has invested hundreds of millions of dollars in AI.
Some of the recent moves by Cisco certainly reflect this new focus. For example, earlier this year, Cisco paid $28 billion to buy Splunk, a data analytics and cybersecurity specialist. Cisco has also teamed up with Nvidia to develop AI-optimized networking hardware that underscores further commitment to AI and related technologies.
Financial Challenges and Future Prospects
This came despite strategic moves, and the financial performance for Cisco has been less than stellar over the past few months. On the sales side, total revenue was down 6 percent at $53.8 billion for the 2024 fiscal year, compared to the year before. Its core networking segment was down by a massive amount, with revenues dropping 15 percent to $29.2 billion. Security products gained 32 percent, while service revenues gained 5 percent.
Even though these financial results were mixed overall, the leadership at Cisco remains optimistic. Robbins underlined that there is still strong demand across Cisco’s product portfolio. Herren, for his part, underlined that it did hit a record operating margin at 32.5 percent on a non-GAAP basis. The stock market seemed to react positively to Cisco’s restructuring and focus toward AI, as shares of the company rose 6 percent in after-hours trading.
The Big Picture
Cisco is not the only one forced to make these tough decisions. Rival technology companies are trimming staff as part of their push to keep up with shifts in technology occurring at breakneck speeds. Intel, for example, announced a few weeks ago that it would cut 16,000 jobs, which is about 15% of its workforce worldwide. Dell has also begun laying off staff as the company shifts its focus to modern IT and AI solutions.
In other words, Cisco is cutting jobs as it refocuses on AI and cybersecurity. This is quite unfortunate, considering the job cuts, but it mirrors adjustments that have to be done in the light of new realities faced by the company. Cisco hopes to secure its place in the future of technology by focusing on the high growth area of artificial intelligence.
