Cisco dials back on hiring, cool winds blow through economy

'I think it is a time for everyone to be prudent' says networking giant's CFO

Networking kingpin Cisco is hiring more cautiously to indicate that it, like many peers, is taking note of macroeconomic red flags.

"It's a time to be prudent," Richard Scott Herren, Cisco senior veep and chief financial officer told the Nasdaq Investor Conference. "I think it is a time for everyone to be prudent… so we're doing the same."

The hot spots – or the "highest priority items for us" – including security, will continue to see investments in headcount, he said.

"We're inspecting every opening," the CFO added.

The UK appears to be heading into a recession, as former chancellor Lord Hammond warned yesterday, and the US may already be in recession, Guggenheim CIO Scott Minerd told Bloomberg. Bank interest rates are rising, inflation is at a 40-year high stateside and at the highest level in Britain since 1982.

Herren at Cisco stated the obvious that "no one wants a recession" but he pointed to the $46 billion in sales that Cisco has transacted, which has yet to show up on the profit and loss accounts yet, due to lower-than-desired product availability.

"The product backlog stands at north of $15 billion at this point," he said, "just product, not services.

"Within that, by the way, there is $2.4 billion of backlog on software.

"How can you have a backlog if there's no supply chain issue? Well, there is, right? Because a lot of our software is attached to hardware, both in the security business and in our Meraki and our core networking businesses."

This $15 billion figure is combined with $30 billion on remaining performance obligations – the sum of committed but unbilled orders – plus deferred revenue.

"So actually we're quite confident in that position," Heren added.

Cisco is struggling to source 350 key components, including power supplies and ASICs, and said this equates to just 1 percent of the 40,000 plus components it orders.

In recent weeks Salesforce, Microsoft, Intel, Meta, Twitter, Uber and others all talked of slowing, or in some cases freezing recruitment, in recognition of the short-term uncertainty ahead.

Cisco is not alone. Elsewhere in the tech world, Intel's PC division has paused recruitment, dispatching a memo to staff talking of "increased focus and prioritization our spending [to] help us weather macroeconomic uncertainty". The chipmaker is also asking PC staff to cut travel and hold virtual meetings where possible.

Shipments of computers have slowed in 2022 following 27 months of rapid growth, when lockdown spurred demand for personal devices.

Microsoft is slowing recruitment in some areas, "making sure the right resources are aligned to the right opportunity", and Nvidia is doing the same "to focus our budget on taking care of our existing employees as inflation persists."

Over at Salesforce, CFO Amy Weaver said on a Q1 results call recently that it was "going to continue to hire, we are hiring, but in a much more measured pace."

"I do want to reiterate," she told analysts on a conference call "this is not just a finance-led initiative, this focus on discipline is being applied across our entire organization."

As British lawyer, politician and diplomat Viscount Cecil once said: "Prudence is no doubt a valuable quality, but prudence which degenerates into timidity is very seldom the path to safety."

It may be a tricky balance to get right, but companies in the tech industry have plenty of experience. ®

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