Cisco swings the axe again, cuts 6,300 jobs

• Cisco is in restructuring mode
• As expected, it is making further job cuts, this time impacting about 6,300 staff
• It is also combining all its product lines under one executive and has sidelined its head of networking Jonathan Davidson
• Full fiscal year revenues drop by 6% to $53.8bn

As anticipated, Cisco Systems announced further significant job cuts as it reported its fiscal fourth quarter and full year financial results, with 7% of the global workforce, about 6,300 staff, impacted: It also unveiled a major product portfolio management revamp to bring all of its product lines under one chief product officer.  

The vendor is still making money but its sales and margins are down (more on that later), its focus is shifting away from its traditional networking product sectors, and its business outlook for the coming year doesn’t feature much in the way of growth, so it’s cutting costs (though it is trying to soft sell the move as one of resource reallocation). 

And in an effort to better integrate its technology offerings for customers and simplify its operational structure, Cisco unveiled a plan to combine its various product lines into a single team under the leadership of chief product officer Jeetu Patel, who has successfully revamped the vendor’s security and collaboration portfolios. The networking, security and collaboration lines will be combined initially, with the observability portfolio that was added when Cisco completed its $28bn acquisition of Splunk in March this year, being integrated later on. 

That change heralds the end of Jonathan Davidson as the head of Cisco’s networking division: Davidson now becomes an “advisor” to Cisco CEO Chuck Robbins, which is another way of saying he is going on gardening leave before clearing his desk. 

More job cuts

In February this year, Cisco announced it was cutting about 4,200 jobs (5% of its workforce) as business conditions worsened. Then in March it completed the Splunk acquisition, a deal that bumped up its headcount again. 

Now, the vendor noted in a filing with the SEC, it is cutting 7% of its global headcount as part of a “restructuring plan” that will cost about $1bn, with $700m-$800m of those charges being recognised in the current first quarter of its 2025 fiscal year (which ends in September), so it is moving quickly. 

Cisco didn’t provide details or commentary in the SEC filing, but its executives noted on the company’s earnings call with investors and analysts that it currently has about 90,000 staff (following the integration of Splunk), so the restructuring will impact about 6,300 staff. Once these cuts are made, Cisco will have shrunk its global workforce by more than 10,000 roles in the calendar year 2024. 

Apart from reducing operating costs, the driver behind the move is the shift in its business focus more towards security, AI and software and away from its traditional networking portfolio, the sales for which are shrinking. As with most technology companies right now, AI is at the heart of a lot of new developments and business efforts: In June, its global corporate venture investment arm, Cisco Investments, launched a $1bn AI investment fund “to bolster the startup ecosystem and expand the development of secure and reliable AI solutions.” And while its networking business is certainly supporting the AI efforts of its customers, particularly the hyperscalers and other datacentre operators, that product line is no longer front and centre for Cisco. 

The company’s CFO Scott Herren noted on the earnings conference call that it is “pivoting more into AI, pivoting more into cloud, and pivoting more into cybersecurity.” and suggested that, in time, jobs might be added in those areas but in “lower-cost locations”. That sounds (potentially) like jobs will be cut now in the US and other high-wage markets and some (though not as many) added later in countries such as India.  

The portfolio integration

To announce the organisational revamp, Cisco published a blog attributed to Chuck Robbins. 

In that blog he noted that the integration of the product lines under one leader “will help us accelerate our product innovation and bring our portfolio together in a more integrated way than ever before. It will also allow us to provide a better, unified experience for our customers and partners, while delivering unique solutions to help them achieve their technology outcomes and drive business growth.”

The CEO added: “Further uniting our product teams is an important step toward unification and simplification and will ultimately lead to even stronger technology outcomes for our customers and partners. Our portfolio is coming together in new ways to help solve some of the world’s most pressing challenges. Looking ahead, I’m optimistic about the future and confident in Cisco’s ability to capture the massive opportunities in front of us as we deliver even greater value for our customers and partners.”

And on the earnings conference call, responding to a question about the move from Jefferies & Co. analyst George Notter, Robbins noted: “If you look at what our biggest competitive differentiation is in the marketplace, it's really when we do deep cross integration across a portfolio and we're delivering on a platform strategy for our customers. And I felt like with the pace at which the AI revolution is moving and what our enterprise customers need from us, and… as security and networking continue to become more tightly intertwined, I just felt like it was important for us to have a single leader. And if you look at what Jeetu has accomplished in his four years here when he took on the collaboration business originally, I think everybody remembers what the portfolio was like then versus what it's doing now with double-digit growth this quarter. And obviously, in the security portfolio, he's done exactly as we had expected. And I think we have a great networking team. And I think his focus on execution, innovation, and sense of urgency is going to be really welcome there. And so, we look forward to seeing what the teams accomplish and the innovation that they'll deliver in the future.”

This all sounds very positive, as you’d expect, but Robbins and his team will also (surely!) be well aware of the many pitfalls that come from integrating separate teams and changing leadership responsibilities, not the least of which is the resulting internal battles and power struggles that can lead to a loss of focus – and that’s on top of the negative impact that the restructuring process will have. Let’s see how the Cisco community copes with the changes. 

The numbers

So what about Cisco’s financial performance? 

In the fiscal fourth quarter that ended 27 July, the vendor generated total revenues of $13.6bn, down 10% year on year, while its operating profit dipped to  $2.62bn from $4.25bn a year earlier. Product revenues were down by 15% and services revenues were up by 6%: Splunk contributed about $960m of total revenues for the quarter. “Product revenue performance reflected growth in Security, up 81%, and Observability, up 41%,” while ”Networking was down 28%” and “product revenue in Collaboration was flat,” noted the vendor. That’s a big dip for the networking business.

Cisco has, like other networking equipment vendors, been hit by a quite dramatic dip in spending by network operators (as they used up inventory rather than buying additional gear) during the past year, though Robbins suggested on the earnings call that “inventory digestion is complete and we're now returning to a more normalised demand environment."

For the full financial year, total revenues came to $53.8bn, a decrease of 6%, while operating profit fell to $12.18bn from $15.03bn in the previous full year. (Splunk contributed approximately $1.4bn of total revenue for fiscal 2024.)

Cisco expects full fiscal year 2025 revenues to be between  $55bn and $56.2bn, which means roughly the same as this year as it will include a full year of Splunk sales. 

- Ray Le Maistre, Editorial Director, TelecomTV