Cisco offers upbeat sales forecast even as it cuts jobs

(Bloomberg) — Cisco Systems Inc., the largest maker of computer networking equipment, gave an upbeat revenue forecast for the current period thanks to a rebound in orders, but announced plans to cut thousands of jobs as part of a change in strategy.

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Sales will be between $13.65 billion and $13.85 billion in the fiscal first quarter, which ends in October, the company said in a statement Wednesday. Analysts had estimated a number at the low end of that range.

Cisco shares, down 10 percent this year, gained more than 5 percent in extended trading following the announcement. They closed earlier at $45.44 in regular trading in New York.

Cutting the workforce isn’t about trying to increase profits, according to CFO Scott Herren. Cisco needs to transform quickly into cybersecurity, cloud systems and AI-related products, so it’s freeing up resources to do that, he said in an interview.

The cuts will reduce Cisco’s headcount of 90,400 by about 7 percent — representing a loss of more than 6,300 jobs. The move will bring about $1 billion in short-term costs, Cisco said. It also digested the acquisition of Splunk Inc., which it acquired earlier this year.

Even with efforts to sell more software and services, Cisco still relies on installing new equipment for a large portion of its revenue. In this regard, there was an improvement in the last quarter – a sign that corporate customers are investing again in their networks. Previously they focused more on installing the equipment they had already purchased.

“The period of inventory digestion by our customers is now largely behind us,” Chief Executive Chuck Robbins said on a call with analysts. He pointed to strong demand across all regions and major product lines, including from government customers.

Although revenue fell 10% to $13.6 billion in the fourth quarter, it beat the $13.53 billion that analysts had expected. Profit was 87 cents a share, minus some items. Wall Street had estimated 85 cents.

Cisco reported a 14 percent gain in orders, a closely watched indicator of future revenue. Orders were flat in the third quarter compared to a year ago, excluding newly acquired Splunk. Excluding Splunk, orders rose 6 percent in the fourth quarter, Cisco said.

In the first quarter, profit will be 86 to 88 cents per share, excluding some items, Cisco said. That compares to a prediction of 85 cents. For fiscal 2025, revenue will reach $56.2 billion, a projection that is above the Wall Street consensus estimate.

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The company is trying to convince investors that new products and services will help Cisco benefit from spending on data centers and artificial intelligence. Unlike some hardware makers, notably Nvidia Corp., the company has yet to point to billions in revenue from that area.

Cisco’s management team has tried to focus investors’ attention on its deferred revenue, which they say shows the success of the shift from one-time purchases to long-term contracts.

(Updates with executive comments beginning in the fifth paragraph.)

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