Networking Giant Cisco Systems plans to cut nearly 7% of its workforce, posting charges of up to $400 million in its first quarter, Cisco shifting focus from its legacy hardware towards higher-margin software.
Fast-growing sectors such as security, the IOT and the cloud has made a sluggish demand for Cisco’s traditional lineup of switches and routers from telecom carriers and enterprise customers, while intense competition from companies such as Huawei, TIPILink and Juniper Networks has made the life difficult already.
The amount saved from this job cut estimated up to 5,500 job cuts would be re-invested into key growth areas, Cisco said.
“We think this is partly an effort by (CEO) Chuck Robbins to put a stake in the ground and send a message that this is going to be a leaner, meaner Cisco that is focused on driving software and recurring revenue business,” said Guggenheim Securities analyst Ryan Hutchinson.
Already 6% fall in the fourth-quarter ended July 30 from the Revenue of company’s routers business made it a tight corner for management, while switching unit revenue was up 2%. Orders from service providers fell 5%, while revenue in emerging markets fell 6%, Cisco said.
Cisco projected flat revenue in the first quarter and gave an earnings forecast that was shy of analysts’ estimates, saying it expected adjusted earnings of 58 cents to 60 cents per share, versus Wall Street estimates of 60 cents.
“We’re uncertain how to model any improvement in those two (segments) in particular going forward,” Robbins told analysts on a call, speaking of service providers and emerging markets.
Robbins, who took over from John Chambers in July last year, has been steering Cisco toward more software and subscription-based services. Security, which Robbins said was the top priority of all its customers, posted a revenue gain of 16% in the quarter.
A fall of a networking giant could be the next big story in the industry if right course correction is not made on the ground.