Cisco implements restructuring plan, including layoffs, as stock tumbles

Cisco Chuck Robbins
During a fourth quarter earnings call, Cisco CEO Chuck Robbins lays out a restructuring plan that includes a voluntary retirement program and layoffs as the company adjusts to the coronavirus pandemic. (FierceTelecom)

Cisco saw its stock drop by as much as 6% in after hours trading Wednesday night following its Q4 earnings report. On Thursday, Cisco's stock slid by more than 11%, which put it on track for the worst day since February 2011.

During its earnings report, Cisco, which has long been a bellwether vendor for the telecom sector, laid out a restructuring plan that includes a voluntary early retirement program and layoffs.

"Cisco earnings were disappointing on several levels, primarily on the news of a large restructuring and elimination of jobs as well as the forecast for a revenue decline, which shows the company is not meeting its growth forecasts," said Scott Raynovich, founder and chief analyst of Futuriom, in an email Wednesday afternoon to FierceTelecom. "The share price looks like it will fall on Thursday based on the fact that investors were too optimistic that cloud infrastructure expansion could support Cisco’s business. The fact is that Cisco has never been a major player in the cloud, and this quarter may be proving out that point."

Sponsored by Anritsu Company

Free eBook: Efficient Testing Will Contribute to Long-Term Success in the 5G Marketplace

As companies worldwide race to launch 5G successfully and avoid post-deployment setbacks, we see a massive rise in the demand for 5G test and measurement equipment. We will discuss how efficient testing can contribute to long term success in 5G marketplace.

RELATED: Cisco starts layoffs, but doesn't say how many employees will be laid off

Cisco, which has about 75,000 employees, didn't say how many employees would be laid off of going forward, but it has been laying off employees over the past few quarters as it transitions to generating more of its revenues from software rather than hardware. In the fourth quarter, Cisco reached its goal of generating half its revenue from software and services, but Robbins didn't say if there was a new goal going forward.

The restructuring plan started in the current quarter and is expected to recognize a related one-time charge of about $900 million.

"Over the next few quarters, we will be taking out over $1 billion on an annualized basis to reduce our cost structure," Cisco CEO Chuck Robbins said on the fourth quarter earnings call, according to a Seeking Alpha transcript. "I think this pandemic is basically just giving us the air cover to accelerate the transition of R&D expense into cloud security, cloud collab, away from the on-prem aspects of the portfolio. Clearly, we've got a lot of technology that we're working on today to help our customers over the next three, four, five years in this multi-cloud world that they're going to live in, and you'll see more of that come out over the next couple of years."

Investors were spooked by Cisco's guidance going forward. Cisco executives said current-quarter revenue could drop between 9% and 11% from last year, implying a range of between $11.71 billion and $11.97 billion, while analysts had expected $12.25 billion.

Cisco also forecast adjusted earnings of 69 cents to 71 cents per share, below estimates of 76 cents per share, according to Refinitiv IBES data.

For the fourth quarter ended July 25, Cisco's revenue fell about 9% to $12.15 billion, but it beat estimates of $12.08 billion, as more people working from home increased the demand for its web security and Webex teleconferencing applications and services. Excluding items, Cisco earned 80 cents per share in the quarter, beating estimates of 74 cents.

Cisco's product revenue in the fourth quarter decreased by 13% to $8.83 billion. Infrastructure revenue was impacted by the coronavirus pandemic with declines across switching, routing, data center and wireless. On the other hand,Cisco's Catalyst 9K switch portfolio was up by double digits in Q4 a some customers took advantage of their employees working from home to refresh their aging infrastructures.

Cisco's application revenue decreased by 9% to $1.36 billion while sales of security products increased by 10% to $814 million. "Other Products," which brought in $35 million, declined by 17%. 

Cisco's public sector was down 1%, while enterprise was down 7%. Commercial was down 23%, and service provider, which has struggled over the past several quarters, was down 5%.

While Cisco is in the midst of its restructuring plan and transitioning its R&D into cloud security and cloud collaboration, Robbins said Cisco has a list of M&A targets that it's monitoring.

Robbins announced that CFO Kelly Kramer, who has been with Cisco for eight years, will be stepping down, but will stay on until her successor is found.

Suggested Articles

Now that Nvidia has pivoted into the networking and mobile chip market with its acquisitions, large networking incumbents should be very nervous.

Windstream Holdings announced on Monday that it's now free from the shackles of Chapter 11 bankruptcy.

VMware's VeloCloud SD-WAN has found a home in Equinix's data centers, which means VMware can now offer it as a virtual network function (VNF.)