The Silicon Valley company announced the cuts — about 7% of its global workforce — during its fiscal financial earnings report. Sluggish spending by corporations and telecom carriers of network switches and routers, Cisco's big moneymaker, have prompted it to delve into other fields, such as cloud computing and the Internet of Things.
The news sent Cisco shares down 1%, to $30.36, in after-hours trading.
Cisco slightly beat analysts’ estimates with a quarterly profit of $2.8 billion, or 63 cents a share, on revenue of $12.64 billion. Analysts surveyed by FactSet predicted adjusted earnings of 60 cents a share on revenue of $12.57 billion.
Cisco CEO Chuck Robbins deemed the quarter a "challenging environment with volatility" in a conference call on Wednesday. He said Cisco would increase investments in growth areas.
Like fellow tech behemoths Oracle and IBM, Cisco finds itself wrenching toward a shift of business to fledgling markets such as cloud computing and the Internet of things. And, like them, it has scooped up companies specializing in those technologies: In February, Cisco announced plans to acquire IoT company Jasper Technologies for $1.4 billion.
Intel, another venerable tech giant trying to maneuver an ever-shifting tech climate, in April it would slash up to 12,000 jobs, or 11% of its worldwide workforce.
“A big pivot is reasonable,” says IDC analyst Rohit Mehra. “Cisco’s bread-and-butter business, switching and-routing business, isn’t going away but it has slowed, as has wireless LAN. They need to do something new.”
Cisco's headcount reduction isn’t “necessarily a negative for Cisco’s share price performance,” analysts for global banking investment firm Jefferies said in a note today, maintaining a “buy” rating on Cisco stock.
“Naturally, any headcount reduction could be viewed as a sign of weakness in business fundamentals,” the note said. “We believe that any headcount reduction at Cisco – at this point – would be driven by their natural re-organization of the business.”
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