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In a recent announcement, US tech giant Cisco revealed plans for a significant workforce reduction, signalling a challenging period for the company and its employees. Here’s what you need to know about this development.
Cisco Announces Layoff Of 4000 Employees
Joining the list of Big Tech MNCs who laid off thousands of employees this year is a San Jose-based networking and telecommunications giant, Cisco Systems.
On February 15, 2024, Networking and Technology Giant Cisco Systems announced a significant reduction in its workforce, laying off more than 4,000 employees, which represents approximately 5% of its global workforce of 84,900. The layoffs were announced in a filing with the Securities and Exchange Commission alongside Cisco’s quarterly earnings report.
This is the second round of layoffs for Cisco in two years. Earlier, the company shed 5,000 workers in late 2022. This decision is part of a broader restructuring plan aimed at streamlining the company’s operations and enabling further investment in key priority areas.
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Reasons Behind the Layoffs
The main reason coming out for this employee reduction is the need for corporate restructuring due to evolving market dynamics. Cisco spokesperson Robyn Blum cited “the cautious macro environment, our customers continuing to absorb high levels of product inventory, and ongoing weakness in the Service Provider market” as reasons for the layoffs.
Factors such as changes in consumer preferences, technological advancements, and competitive pressures contribute to the need for organizational adjustments.
By restructuring its workforce, Cisco aims to reallocate resources strategically and align its operations with its long-term goals. The move also reflects the company’s efforts to streamline operations and enhance efficiency in response to evolving market dynamics.
The Broader Context
This layoff by Cisco Systems is part of a wider tech trend. While Cisco is not the only tech company, companies like Google, Amazon, Microsoft, TikTok, Riot Games, eBay, and PayPal are also cutting out on workforce. This trend reflects the dynamic nature of the industry, where companies constantly reassess their operations to stay competitive.
Moreover, the tech-centric’s Nasdaq composite index has jumped by around 50% since 2022, nearing its 2021 peak. This uptrend underscores the resilience and growth potential of technology-focused companies despite the challenges posed by the market changes.
In a statement addressing the layoffs, Cisco emphasized its commitment to supporting affected employees through the transition process. Cisco is and will continue to provide career support and market-competitive severance packages to affected employees. Besides, the company has already filed a WARN notice with the state about the mass layoff.
Financial Implications of Layoff
The layoffs are expected to cost Cisco an additional cost of $800 million to the company. Despite the layoffs, Cisco’s revenue for the fiscal second quarter covering October-January was $12.8 billion, a 6% decrease from the previous year. The company’s stock price has gained just 6% during the same period.
Cisco is in the midst of acquiring San Francisco-based Splunk for $28 billion. The deal has not yet closed, and the company already announced the second layoff.
Market Response and Investor Sentiment
News of the layoffs has garnered immediate attention from investors and industry analysts. The news has led to a decline in Cisco’s stock price, with a drop of over 5% in after-hours trading following the earnings call.
While some view the restructuring as necessary to drive growth and competitiveness, others may express concerns about its short-term impact on the company’s bottom line. Some experts expect AI to eventually be able to do even more work and trigger more layoffs of people who won’t be necessary to employ in the future.
In the company’s second-quarter earnings release, CEO Chuck Robbins stated, “We continue to align our investments to future growth opportunities. Our innovation sits at the centre of an increasingly connected ecosystem and will play a critical role as our customers adopt AI and secure their organizations.”
Hence, the overall market sentiment is of mixed reactions.