Cisco Plans Big Severance Payout, Restructuring to 'Key Priority Areas'

Cisco Systems‘ plans for a restructuring cast a shadow on the strong gains the company reported in cybersecurity and software in its latest quarterly earnings.

Cisco drove $13.6 billion in revenue in the first quarter of its fiscal year 2023 – its highest quarterly revenue ever reported. That represents a 6% year-over-year increase. Within that number, Cisco grew its software revenue by 5% and its software subscription revenue by 11%. Moreover, its cybersecurity practice grew by 9% in revenue. In addition, Cisco executives pointed to the alleviation of supply chain problems that have hampered partners and their customers in 2022.

However, the company at the same time announced a restructuring plan that will “enable further investment in key priority areas.” That restructuring will include layoffs, as Cisco revealed that it plans to incur pre-tax charges for expenses that include severance. Cisco executives did not give a number for the number of employees impacted.

The company stated that it will execute the plan in the second quarter of fiscal year 2023, which started Nov. 1, and spend about $600 million in severance and other termination benefits as well as real estate-related charges. Approximately $300 million of the charges will occur in the second quarter of fiscal year 2023, and another $200 million in the second half of the fiscal year.

Revenue Growth

Cisco nevertheless reported positive earnings in its first-quarter report, leading the company to raise its full-year outlook to 4.5-6.5% year-over-year revenue growth.

Cisco drove $2.7 billion in profit, down from $3 billion a year ago. Its networking segment led the way with a 12% year-over-year revenue increase. For example, the company reported record performance in its Catalyst 9000 switching family.

The 9% growth in its security practices came thanks in part to unified threat management and zero-trust offerings. Its application group rose 7%, buoyed by its ThousandEyes line.

The company also saw double-digit wireless growth, driven by the company’s Wi-Fi 6 and Meraki wireless offerings.

Cisco’s “Internet for the Future” group dropped 5%. Cisco cited declines in cable, optical and edge.

Supply Chain

Cisco chair and CEO Chuck Robbins noted that the supply chain problems that have hampered the entire network infrastructure industry are starting to ease up.

“We now have greater visibility in the ramp of our customer product deliveries, which in turn gives us greater confidence in our fiscal 2023 outlook,” Robbins said.

Cisco has reported record product backlog this year. And Robbins told analysts that Cisco will keep momentum even after it fulfills those orders.

“Even if our orders are down 10% this year, which is not our forecast, we project today that we will end the fiscal year with ’23 with our historic year-end normal backlog. That normal backlog is typically $4 billion-$5 billion,” Robbins said.

In addition, Robbins said supply chain progress is helping Cisco’s software subscription business. Cisco executive vice president and chief financial officer Scott Herron said the company has $2 billion of software orders in its product backlog.

“The easing of supply constraints and our ability to deliver hardware is now releasing software subscriptions that were sitting in backlog connecting to ship hardware,” Robbins told analysts.

Cisco Restructuring Details

Cisco’s Chuck Robbins

Robbins said he will speak to employees about the restructuring on Thursday. He said he would prefer to not add more details at this moment.

“What we’re doing is right-sizing certain businesses,” Robbins told analyst in the Cisco quarterly earnings call. “We’re really focused on resources moving into [areas] like the enterprise networking space, accelerating our platform strategy.”

He added that Cisco will make more investments in security, an area the IT giant heavily promoted at its recent Partner Summit.

The announcement fits well with the rest of the enterprise technology world, which is seeing a rash of layoff announcements amid an impending economic downturn. Oracle, Intel and most recently Gradient and Asana are just several of the vendors that have announced a workforce reduction.

Impacted Areas

A thread on TheLayoff.com indicated that Cisco’s collaboration business will see a reduction. The collaboration unit reported a 2% year-over-year decrease in revenue, with executives citing a decline in Cisco’s meetings solutions. On the other hand, executives said Cisco is seeing strong in cloud calling and contact center.

The rest of the unified communications industry is seeing a similar pinch. Last week UCaaS giant RingCentral cut its workforce by about 10%.

Cisco last month announced a partnership with Microsoft in which Microsoft will certify Cisco conferencing and communications devices for Teams Rooms.