Cisco recently announced a major restructuring plan that involves cutting 7% of its global workforce. Despite this, the company reported quarterly results that exceeded analysts’ estimates. The earnings stood at 87 cents per share, adjusted, as opposed to the expected 85 cents per share. Additionally, the revenue reached $13.64 billion, surpassing the expected $13.54 billion. This news led to a surge in Cisco’s shares during extended trading.
Cisco has been grappling with a prolonged period of decline, with sales dropping for the third consecutive quarter. The company attributes this decline to the diminishing demand for its core networking products, such as switches and routers, as more large enterprises transition to cloud-based solutions. In response, Cisco has been focusing on expanding its software and securities business to diversify its revenue streams and enhance recurring subscription income.
The restructuring plan announced by Cisco will incur $1 billion in pretax charges to the company’s financial results. This move is intended to enable Cisco to invest in key growth opportunities and drive operational efficiencies. The company anticipates that $700 million to $800 million of these charges will be recognized in the current quarter, with the remainder spread out over fiscal 2025. This restructuring marks the second significant round of layoffs for Cisco this year, following the elimination of 5% of its workforce in February.
In the fiscal fourth quarter, Cisco reported a 10% decline in revenue, dropping from $15.2 billion in the previous year to $13.64 billion. This marked the first annual decrease in sales since 2020. Looking ahead to the next period, Cisco anticipates revenue of $13.65 billion to $13.85 billion in the fiscal first quarter, down from $14.7 billion in the prior year. Analysts had projected revenue of $13.7 billion for the upcoming quarter.
Despite the ongoing sales decline, Cisco has managed to outperform expectations due to the boost in subscription revenue from the acquisition of Splunk for $28 billion. The acquisition, which closed in March, represented Cisco’s largest deal to date. In the latest quarter, networking revenue plummeted by 28% to $6.8 billion, while security revenue surged by 81% to $1.8 billion. Collaboration revenue remained relatively stable at $1 billion, with Splunk contributing $960 million in revenue.
Cisco’s recent financial results and restructuring plan underscore the challenges faced by the company as it navigates a rapidly evolving technological landscape. While the decline in sales and workforce reductions may pose short-term setbacks, Cisco’s efforts to pivot towards software and subscription-based services show promise for future growth and resilience in the face of changing market demands.
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