Cisco, one of the leading tech companies, has announced its plans to cut 5% of its workforce, resulting in the elimination of approximately 4,250 jobs. This decision comes as the industry continues to downsize in an effort to reduce costs following the market downturn that occurred two years ago. The news of the job cuts caused Cisco’s shares to drop as much as 9% in extended trading.
The tech industry has seen a surge in downsizing this year, with January being the busiest month for job cuts since March. Other major tech companies such as Alphabet, Amazon, Microsoft, and SAP have also announced their plans to eliminate positions. Even companies like eBay, Unity, and Discord have not been immune to this trend. According to the website Layoffs.fyi, a total of 144 tech companies have laid off nearly 35,000 workers so far this year.
Despite the announcement of job cuts, Cisco reported strong fiscal second-quarter results. However, the company provided a light forecast for the future. In comparison to the consensus from LSEG (formerly known as Refinitiv), Cisco’s earnings per share were 87 cents (adjusted) versus the expected 84 cents, and its revenue was $12.79 billion compared to the expected $12.71 billion.
During the quarter that ended on January 27th, Cisco’s revenue declined by 6% year over year. Net income also decreased from $2.77 billion to $2.63 billion, and earnings per share dropped from 67 cents to 65 cents. The company is still in the process of finalizing its $28 billion acquisition of monitoring and security software maker Splunk, which is expected to be completed late in the first calendar quarter or early in the second quarter.
Cisco’s revenue from networking products totaled $7.08 billion, slightly below the consensus among analysts surveyed by StreetAccount, which was $7.10 billion. Looking ahead, Cisco provided guidance of 84 to 86 cents per share on $12.1 billion to $12.3 billion in revenue. However, analysts were expecting 92 cents per share on $13.09 billion in revenue, according to LSEG.
For the full year, Cisco expects adjusted earnings per share of $3.68 to $3.74 and revenue of $51.5 billion to $52.5 billion. Analysts had projected adjusted earnings per share of $3.86 and revenue of $54.26 billion. It’s important to note that these projections exclude the impact from the Splunk acquisition.
During a conference call with analysts, Cisco CEO Chuck Robbins addressed the challenges that influenced the company’s guidance. He mentioned that there is a greater degree of caution and scrutiny of deals due to the high level of uncertainty in the macro environment. Additionally, customers have been taking longer than expected to deploy the elevated levels of products shipped to them in recent quarters.
Robbins also highlighted that demand remains sluggish among telecommunications and cable service provider clients. Despite these challenges, Cisco announced an increase in its dividend by a penny to 40 cents per share.
In conclusion, Cisco’s decision to cut 5% of its workforce reflects the ongoing trend in the tech industry to downsize and reduce costs. While the company reported strong second-quarter results, its forecast for the future was more cautious. The challenges in the macro environment and slower product deployment by customers have contributed to this outlook. However, Cisco remains committed to its growth strategy and has increased its dividend as a sign of confidence in its long-term prospects.