Cisco starts 'talent movement options', and restructuring amid real estate cuts

Profit down in latest quarter but forecast for 2023 raised

Cisco is forging ahead with restructuring that involves cutting jobs, moving headcount to priority divisions and consolidating real estate, despite raising its revenue forecast for the current financial year.

The plan was outlined as Cisco reported a 6 percent year-on-year spike in revenues to $13.6 billion for Q1 of its fiscal 2023 ended 29 October, with healthy gains made in the core switch and router division and in security.

“We delivered the largest quarterly revenue in our history, driven by excellent execution and the actions our team took to remediate our supply challenges,” said CEO Chuck Robbins on a conference call. “Given these results, along with the strength of our orders, our visibility and easing supply constraints, we are raising our full year outlook.”

“The easing of supply constraints and our ability to deliver hardware is now releasing software subscriptions that were sitting in backlog connecting to unshipped hardware,” he said. “The redesign of many of our products has also helped bring supply stability and more resiliency.”

The Secure, Agile Networks division bounced 12 percent to $6.684 billion led by campus switches, End to End Security was up 9 percent to $971 million on Zero Trust demand and Optimized Application Experiences grew 7 percent to $193 million, fueled by SaaS-based Thousand Eyes.

On the way down were Internet of the Future (cables, optical and edge), which slid 5 percent to $1.31 billion, and Collaboration dropped 2 percent to $1.086 billion due to a decline in meetings.

The CEO said hybrid work, 400G datacenter switches (for which it has 1,200 customers now), Wi-Fi 6, security, and full stack observability were “tailwinds.” He added: “We believe these broader technology transitions will require every customer to re-architect their network infrastructure, and in turn, fuel long-term growth across our portfolio.”

Cisco, like many aging hardware vendors, is switching to more software and subscriptions, and annualized recurring revenue was up 7 percent to $23.2 billion.

For the year ahead, Cisco upped revenues forecast to 6.5 percent growth from 6 percent.

Robbins said customers are “closely watching the economy” but he reckons they intend to continue investing in networking tech. He added it had seen “some emerging cautiousness in Europe” due to “the energy cost” but Asia was “resilient” and Americas “mixed.”

Profit was down $300 million or 10 percent year-on-year to $2.7 billion. Total expenses were up to $4.806 billion from $4.615 billion.

In a nod to market uncertainty in June, Cisco froze hiring in parts of the organization. Now it has taken things further by announcing a restructuring plan to “rebalance the organization and enable further investment in key priority areas.” Around 5 percent of the 26,000 strong workforce are to be chopped.

In a statement, Cisco said this “rebalancing will include talent movement options and restructuring.” Basically, if an employee is chopped they will be allowed to seek alternative employment in Cisco, but it’s not guaranteed.

“Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results of approximately $600 million consisting of severance and other one-time termination benefits, real estate-related charges, and other costs,” it said.

The company, like many others in tech and elsewhere in business, has embraced the remote working movement, and is “rightsizing our real estate footprint,” said CFO Scott Herren.

In recent weeks, Meta, Amazon, Intel, Twitter and others have announced layoffs. Many more have paused recruitment.

Robbins said he is speaking to employees about the restructuring today so was reluctant to go into the nitty gritty with analysts on a conference call last night.

“I would say that what we're doing is rightsizing certain businesses. We're really focused on resource moving into the enterprise networking space, accelerating our platform strategy. We will be making significant investments in security and beefing up our team there and the capacity to continue to innovate there. Those are important areas."

Heren added: “Don't think of this as a headcount action that is motivated by cost savings. This really is a rebalancing… In a perfect world, you'd have 100 percent skill match, and you can take the people in the areas or the skills in certain areas and just move them to where we need to invest but unfortunately, it's not a perfect world.”

Beefing up the security teams and delivering more cloud-based products seem to be the goals.

Wall Street liked the tone of Cisco's plan and the share price is up by more than 4 percent today. ®

 

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