Cisco Announces 5% Cut to Workforce Globally

Cisco has announced a workforce reduction, targeting a 5% cut globally, resulting in the elimination of approximately 4,250 jobs.

Following this announcement, Cisco's shares experienced a decline of up to 9% in after-hours trading.

This move aligns with the broader trend in the tech industry, where companies are streamlining operations to control costs after the market downturn experienced two years ago.

In January alone, major players like Alphabet, Amazon, Microsoft, SAP, eBay, Unity, and Discord disclosed job cuts, contributing to a total of nearly 35,000 job losses across 144 tech companies so far in 2024.

Despite revealing strong fiscal second-quarter results, Cisco provided a cautious outlook for the future.

The company reported a 6% year-over-year decline in revenue for the quarter ending on January 27, with net income dropping to $2.63 billion, or 65 cents per share, compared to $2.77 billion, or 67 cents per share, in the corresponding period of the previous year.

Cisco is still in the process of finalizing its $28 billion acquisition of monitoring and security software maker Splunk, expecting to complete the deal in the late first quarter or early second quarter of the calendar year, as per CEO Chuck Robbins.

The revenue from networking products amounted to $7.08 billion, slightly below the consensus forecast of $7.10 billion among analysts surveyed by StreetAccount.

Looking ahead to the fiscal third quarter, Cisco anticipates adjusted earnings per share between 84 to 86 cents on revenue ranging from $12.1 billion to $12.3 billion.

However, this forecast falls short of analyst expectations, with analysts polled by LSEG projecting adjusted earnings of 92 cents per share on $13.09 billion in revenue.

For the full fiscal year, Cisco forecasts adjusted earnings per share in the range of $3.68 to $3.74 and revenue between $51.5 billion to $52.5 billion.

This guidance also falls below analyst projections, who were expecting $3.86 in adjusted earnings per share and $54.26 billion in revenue.

Notably, these projections exclude the impact of the impending Splunk acquisition.

During a conference call with analysts, CEO Chuck Robbins highlighted challenges influencing the guidance.

He mentioned a higher level of caution and scrutiny in deals due to increased uncertainty in the macro environment.

Additionally, customers have been taking more time to deploy products received in recent quarters, impacting expectations for the current fiscal year.

Robbins specifically noted sluggish demand among telecommunications and cable service provider clients.

Despite these challenges, Cisco has decided to increase its dividend by one cent to 40 cents per share.

The company remains vigilant in navigating the evolving market conditions and ensuring a strategic approach to its financial performance.