Cisco recently announced that it will be reducing its global workforce by 7%, which seemed to have had a positive impact on their financial results. The company reported earnings of 87 cents per share, adjusted, as opposed to the expected 85 cents per share. In terms of revenue, Cisco surpassed analysts’ estimates by bringing in $13.64 billion compared to the expected $13.54 billion. This unexpected increase in earnings and revenue could be attributed to the restructuring plan that Cisco is implementing, which will result in $1 billion in pretax charges to its financial results.
The restructuring plan that Cisco has decided to implement is aimed at allowing the company to invest in key growth opportunities while also driving more efficiencies in its business operations. The plan includes $700 million to $800 million in charges that will be recognized in the current quarter, with the remaining charges hitting over the course of fiscal 2025. This marks the second major round of layoffs for Cisco this year, following an announcement in February stating the elimination of 5% of its workforce, equating to over 4,000 jobs. Prior to the initial cuts, Cisco had 84,900 employees at the end of fiscal 2023.
Cisco has experienced an extended stretch of declines, with sales falling for a third consecutive quarter. The company’s core networking business, which includes switches and routers, has been on a downward trend since large enterprises began transitioning to the cloud several years ago. To counter these declines, Cisco has been focusing on bolstering its software and securities business to diversify and bring in more recurring subscription revenue. Despite these efforts, revenue in the fiscal fourth quarter ended July 27 dropped by 10% from $15.2 billion a year earlier, marking the first decline in sales since 2020.
Looking ahead, Cisco anticipates that the revenue decline will continue for one more period. In its fiscal first quarter, the company has projected revenue of $13.65 billion to $13.85 billion, down from $14.7 billion in the prior year. Analysts were expecting revenue of $13.7 billion, according to LSEG. Cisco has attributed the revenue slippage to certain clients setting up equipment that they had received in previous periods. Despite the sales drop, Cisco managed to outperform expectations in the latest quarter with the help of increased subscription revenue from the acquisition of Splunk, which contributed $960 million in revenue.
The latest financial results from Cisco show a significant impact from the workforce reduction, with networking revenue plummeting by 28% to $6.8 billion, while security revenue saw an 81% increase to $1.8 billion. Collaboration revenue remained relatively flat at $1 billion. However, the net income in the quarter fell by 45% to $2.2 billion, or 54 cents per share, compared to $4 billion, or 97 cents per share, a year earlier. Prior to the close, Cisco’s shares were down by 10% for the year, while the Nasdaq was up by approximately 14%. However, after hours trading saw a 5.5% increase in the stock price to $47.92.
By carefully analyzing the impact of the workforce reduction on Cisco’s financial results, it is evident that the restructuring plan is starting to yield positive outcomes for the company. Despite the challenges of declining sales in the networking business, Cisco’s efforts to diversify and focus on subscription revenue are showing promising results. It will be crucial for Cisco to continue executing its restructuring plan effectively to drive growth and profitability in the coming quarters.