Cisco shares experienced their best day since November 2020, jumping approximately 7 percent on 15 Aug 2024.
This follows the company’s announcement of a seven percent workforce reduction and quarterly results that surpassed analyst expectations.
This surge in share price reflects investor confidence in the company’s ability to navigate ongoing challenges and implement effective cost-saving measures.
Earnings Beat and Analyst Reactions
Cisco reported $13.64 billion in revenue for the quarter, exceeding Wall Street’s estimate of $13.54 billion. Although revenue fell 10 percent from the same quarter last year—marking the third consecutive quarter of declining sales—Cisco’s profit still surpassed expectations, with net income declining by 45 percent year-over-year.
Morgan Stanley analysts expressed relief in a note to investors, noting that Cisco’s results were better than anticipated.
They said:
“Cisco’s FQ4 beat, and better than expected order numbers were a relief, and supported Cisco falling back into more predictable patterns after nearly 4 years of disruption.”
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Focus on Order Recovery and AI Integration
Bank of America analysts highlighted the performance of Cisco’s networking sales, which were down 28.1 percent year-over-year, primarily due to challenging comparisons. However, they emphasized the importance of order recovery during the quarter. “
Data center switching orders were up double-digits YoY, while orders for campus switching and routing were up high-single digits,” the analysts wrote in their report. They also noted that orders tied to artificial intelligence (AI) surpassed $1 billion, with revenue from AI-related initiatives expected to ramp up in the first half of 2025.
Challenges in Core Networking Business
Cisco’s core networking business, which includes routers and switches, has faced significant challenges as large companies shift to cloud-based solutions. Despite these difficulties, Cisco has managed to partially offset declining sales with recurring revenue from its software and security businesses.
In response to ongoing struggles, Cisco announced a restructuring plan that includes the layoff of 7 percent of its workforce. This plan is expected to result in $1 billion in pretax charges but will enable the company to invest in key growth opportunities and drive greater efficiencies across its operations.
Strategic Workforce Reductions
CEO Chuck Robbins addressed the layoffs during an interview on CNBC’s “Squawk on the Street.
He explained the company would attempt to reassign some employees to other roles within the firm. He added lso discussed the potential role of AI in streamlining general and administrative tasks through automation systems, which could contribute to the company’s broader efficiency goals.
This is Cisco’s second major round of layoffs in 2023. The company announced in February it would eliminate five percent of its workforce, amounting to over 4,000 jobs. Prior to these cuts, Cisco had 84,900 employees at the end of fiscal 2023.
