What are Cisco’s latest layoffs about?

Cisco Systems Plans Job Cuts Amid Strategic Shift

Cisco Systems, the U.S.-based networking giant, is poised to implement a second wave of job cuts this year, further reducing its workforce as the company realigns its focus towards higher-growth sectors such as cybersecurity and artificial intelligence (AI).

According to sources familiar with the situation, the upcoming layoffs are expected to impact thousands of employees, potentially matching or exceeding the 4,000 positions eliminated earlier in February.

Why is Cisco Restructuring?

The anticipated announcement, likely coinciding with Cisco’s fourth-quarter earnings report, underscores the company’s ongoing struggle to adapt to changing market dynamics. Cisco, headquartered in San Jose, California, has been facing weakening demand and persistent supply chain issues in its core business, which focuses on manufacturing routers and switches that are essential for internet traffic.

Strategic Shifts and Market Reactions

In response to these challenges, Cisco has been pursuing a strategy aimed at diversifying its revenue streams. A significant move in this direction was the $28 billion acquisition of Splunk, a cybersecurity firm, finalized in March. This acquisition is expected to enhance Cisco’s subscription-based services, reducing its reliance on one-time hardware sales, which have been increasingly vulnerable to market fluctuations.

However, news of the impending layoffs has already negatively impacted the company’s stock, which fell by nearly 1% following the initial report by Reuters. As of the latest market close, Cisco’s shares were down more than 9% for the year.

Emphasis on Artificial Intelligence

Cisco’s shift towards AI is also a crucial component of its long-term strategy. In May, the company reaffirmed its ambitious goal of achieving $1 billion in AI-related product orders by 2025. This target is supported by a $1 billion fund launched in June, aimed at investing in AI startups such as Cohere, Mistral AI, and Scale AI. Over the past few years, Cisco has made over 20 AI-focused acquisitions and investments, demonstrating its commitment to integrating AI into its product offerings.

Industry-Wide Challenges

Despite these forward-looking initiatives, the broader tech industry has been facing significant challenges, leading to widespread cost-cutting measures. As of August, more than 126,000 employees across 393 technology companies have been laid off in 2024, according to data from Layoffs.fyi, a website that tracks layoffs in the tech sector. This trend reflects the industry’s efforts to balance heavy investments in emerging technologies like AI with the need to streamline operations.

Cisco is not alone in this predicament. Earlier this month, chipmaker Intel announced a substantial workforce reduction, cutting over 15% of its staff, which equates to approximately 17,500 jobs. Intel’s layoffs are part of a broader effort to revitalize its struggling manufacturing division, which has been losing money in recent quarters.

The broader context for these layoffs is the tech industry’s ongoing transition towards AI and other next-generation technologies, which require significant investment. As companies like Cisco and Intel pivot towards these areas, they are simultaneously forced to make difficult decisions regarding their existing operations.