Cisco Begins “Talent Movement Options and Restructuring” • The Register

Cisco is moving forward with the restructuring, which includes job cuts, shifting employees to priority businesses and real estate consolidation, despite an upgrade to its revenue guidance for the current fiscal year.

The plan was outlined when Cisco reported revenue up 6 percent year over year to $13.6 billion for the first quarter of fiscal 2023 ended Oct. 29, with healthy gains in the core switch and router division and in security.

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

“The easing of supply constraints and our ability to ship hardware is now releasing software subscriptions that were on backorder and associated with undelivered hardware,” he said. “The redesign of many of our products has also helped to achieve delivery stability and reliability.”

Secure, Agile Networks business increased 12 percent to $6.684 billion, led by campus switches, end-to-end security increased 9 percent to $971 million on Zero Trust demand and Optimized Application Experiences grew 7 percent to $193 million, driven by Thousand Eyes on a SaaS basis.

On the downside were Internet of the Future (cable, optical and edge), which fell 5 percent to $1.31 billion, and Collaboration fell 2 percent to $1.086 billion on a decline in meetings.

The CEO said hybrid work, 400G data center switches (for which it now has 1,200 customers), Wi-Fi 6, security and full-stack observability are “tailwinds.” He added, “We believe these broader technology transitions will force every customer to redesign their network infrastructure, thereby driving the long-term growth of our entire portfolio.”

Cisco, like many aging hardware vendors, is transitioning to more software and subscriptions, and annual recurring revenue grew 7 percent to $23.2 billion.

For the coming year, Cisco raised its revenue forecast from 6 percent to 6.5 percent growth.

Robbins said customers are “watching the economy closely,” but he anticipates they intend to continue investing in network technology. He added there has been “some caution in Europe” over “energy costs” but Asia is “resilient” and America is “mixed”.

Earnings fell $300 million, or 10 percent, year-over-year to $2.7 billion. Total spend increased to $4.806 billion from $4.615 billion.

In a nod to market uncertainty in June, Cisco froze hiring across parts of the organization. Now it’s gone a step further, announcing a restructuring plan to “rebalance the organization and allow for further investment in key priority areas.” Around 5 percent of the 26,000 employees are said to be hacked.

In a statement, Cisco said this “realignment will include talent shift and restructuring options.” Generally, if an employee is hacked, they may seek alternative employment at Cisco, but this is not guaranteed.

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

The company, like many others in technology and other businesses, has embraced the remote work movement and is “reducing our real estate footprint,” said CFO Scott Herren.

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

Robbins said he’s speaking to employees today about the restructuring, so he’s reluctant to get down to the nitty gritty on a conference call with analysts last night.

“I would say that we are sizing certain companies. We’re really focused on shifting resources into enterprise networks and accelerating our platform strategy. We will make significant investments in security and strengthen our team there and the ability to continue to innovate there. These are important areas.”

Heren added: “Don’t think of this as a downsizing move motivated by cost savings. This is really a realignment… In a perfect world you would have a 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 that is not the case of a perfect world.”

The goals appear to be strengthening security teams and delivering more cloud-based products.

Wall Street liked the tone of Cisco’s plan and the stock is up more than 4 percent today. ®