Cisco announces job cuts and revenue forecast slash amid economic challenges

In response to the economic challenges plaguing the tech industry, networking equipment giant Cisco Systems has declared plans to cut more than 4,000 jobs, equivalent to 5 per cent of its global workforce.

According to Reuters, this decision comes as the company adjusts to a tough economic landscape that has prompted numerous layoffs across the tech sector this year.

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Following the announcement, Cisco's shares experienced a decline of over 5 per cent in extended trading.

Additionally, the company revised its annual revenue target, lowering it to a range between $51.5 billion and $52.5 billion, down from the previously projected $53.8 billion to $55 billion.

Cisco CEO Charles Robbins acknowledged the challenging market conditions, stating, "We also continue to see weak demand with our telco and cable service provider customers."

The telecom industry's spending constraints have been a contributing factor to the subdued demand for Cisco's products.

Analysts anticipate continued pressure on the demand for networking gear as clients in the telecom sector prioritize reducing excess inventory.

Joe Brunetto, an analyst at Third Bridge, predicts that the networking hardware inventory buildup will likely resolve in the second half of 2024 or early 2025.

Despite the current challenges, Cisco is strategically positioning itself for growth by focusing on artificial intelligence and forming partnerships.

CEO Robbins highlighted a collaboration with Nvidia, where the latter agreed to use Cisco's ethernet alongside its own technology, widely utilised in data centres and AI applications.

This move aims to bolster Cisco's growth prospects amid a shifting market landscape.

The company's third-quarter revenue projection, however, falls below estimates, ranging between $12.1 billion and $12.3 billion, compared to the anticipated $13.1 billion according to LSEG data.

Cisco, with its current workforce of 85,000 employees, had earlier hinted at impending layoffs and restructuring to redirect its focus towards high-growth areas.

The job cuts will result in an $800 million charge before tax, covering severance and other related costs.

The majority of these charges are expected to be recognized in the first half of fiscal 2025.

In the second quarter, Cisco reported an adjusted profit of 87 cents per share and revenue of $12.79 billion, surpassing LSEG estimates.

(With inputs from Reuters)