Cisco Confirms It Will Lay Off 5 Percent Of Workforce As Product Revenues Down

The tech giant, whose customers are still digesting orders received following the clearing of the massive backlog, saw weak product revenues in Q2 2024. Cisco also confirmed that it would be cutting jobs globally to adjust expenses focus on key growth areas, CEO Chuck Robbins told investors during the company’s fiscal Q2 2024 earnings call on Wednesday evening.

Cisco Systems saw "greater degrees of caution" related to product ordering during its fiscal Q2 in 2024, which lowered product revenues. At the same time, the tech giant confirmed that it would be cutting jobs globally to adjust expenses and investments to reflect the current macro environment, Cisco Chair and CEO Chuck Robbins told investors during the company’s fiscal Q2 2024 earnings call on Wednesday evening.

Cisco in its second quarter filings announced a companywide layoff that would impact about 5 percent of its workforce, or about 4,250 employees, as it works to realign its organization to focus on "key priority" areas.

The tech giant expects to recognize about $800 million in charges associated with the restructuring, which Cisco said was largely related to severance and other one-time termination benefits. The majority of the costs are expected to occur in the third fiscal quarter and will continue into the first half of the company’s fiscal 2025.

News of the then-reported layoffs first broke last week.

[Related: Cisco Security Cloud Gets Generative AI Booster; Identity Intelligence Launched]

Cisco Q2 2024 Financial Results

Cisco’s Networking segment includes the core switching and routing businesses, as well as the company’s telecommunications, cloud, and optical networking products. Networking, a typically strong category for Cisco, posted a 12 percent decline in revenues of $7.08 billion compared to Q2 2023’s result. This quarter, the segment was impacted by declines in switching, wireless and optical networking, driven primarily by weakness in the enterprise, service provider, and cloud markets, said Cisco CFO R. Scott Herren.

Cisco’s product revenues, which is often led by the networking business, declined 9 percent and service revenues increased by 4 percent during Q1 2024, said Herren.

“In terms of the macro environment, we are seeing a greater degree of caution and scrutiny of deals given the high level of uncertainty,” Robbins said. “As we’re hearing this from our customers, it’s leading us to be more cautious with our forecast and expectations. "As we discussed last quarter and subsequently saw in other technology provider results, customers have been taking time since the start of our fiscal 2024 to deploy the elevated levels of products shipped to them in recent quarters, and this is taking longer than our initial expectations.”

Cisco’s Security segment rose 3 percent quarter over quarter with revenues of $973 million, which Herren attributed to strength in the company’s zero trust and extended detection and response (XDR) offerings.

The tech giant in 2023 announced plans to acquire unified security and observability platform developer Splunk for $28 billion, Cisco’s biggest acquisition to date. Robbins said that the deal, which is still on track to close by Cisco’s fiscal Q3 2024, will create a data platform that will enhance customers’ digital resiliency that takes advantage of Cisco’s complementary capabilities in AI, security and observability.

“Our pending acquisition of Splunk also further supports our transformation strategy by fueling stronger growth, expanding our portfolio of software-based solutions and generating higher levels of [annual recurring revenue] ARR with roughly $4 billion in additional ARR expected upon closing, and will make us one of the largest software companies in the world,” Robbins said.

Cisco’s Collaboration segment, which struggled in fiscal 2023, increased 3 percent year over year to $989 million in revenue compared to Q2 2023, which the company attributed to declines in Meetings that was offset by strong device interest.

The Observability segment continued its strong momentum in 2024, posting 16 percent revenue growth quarter over quarter of $188 million. Observability is an area in which Robbins told CRN in November was a “big opportunity” for the channel.

For Cisco’s fiscal Q2 2024, which ended January 27, revenue slipped 6 percent to $12.79 billion compared to the same period a year ago. Cisco posted non-GAAP earnings per share of 87 cents, a 1 percent decrease compared to a year ago and non-GAAP net income of $3.5 billion in the second fiscal quarter of the year, which was down 3 percent year over year.

Cisco’s stock declined a little more than 5 percent in after-hours trading Wednesday following the networking giant’s earnings release in which it issued weaker-than-expected guidance and the companywide layoff news.