Cisco Cuts 5,500 Jobs As It Pivots To Bolster Software And Services

As part of a restructuring plan, Cisco is laying off 5,500 employees, which represents approximately 7 percent of its global workforce. The announcement comes at the tail end of a successful quarter that saw the networking company post a profit of $2.81 billion, or 56 cents a share, up from $2.32 billion, or 45 cents a share in the same period a year earlier.

To understand the planned layoffs, a closer look at the numbers is required. Cisco's bread and butter for the past 31 years has been networking equipment, and things like routers and switches continue to bring in the most revenue. However, sales of such devices have started to slip—its routing business dropped 6 percent in the fourth quarter, and while switching revenue climbed 2 percent, it fell 4 percent in the previous quarter.

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"Today's market requires Cisco and our customers to be decisive, move with greater speed and drive more innovation than we've seen in our history. Today, we announced a restructuring enabling us to optimize our cost base in lower growth areas of our portfolio and further invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud," Cisco stated in its earnings report.

Cisco's shedding weight and cutting costs so that it can target new market opportunities before it's too late. The money it saves from reducing its workforce will be invested in areas it identifies as having potential for sales growth. It's a move that other big tech firms have made in recent times as well, including both Microsoft and Intel.

The general consensus among market analysts is that this is the right move for Cisco, as painful as it is for the employees receiving pink slips.

"Companies are retooling now in attempt to take advantage of this next generation of opportunities," Patrick Moorhead of Moors Insights & Strategy told "History shows that some make the transition and others don't make it."

Forrester Research analyst Glenn O'Donnell told The Wall Street Journal that Cisco's restructuring effort is a "tectonic shift" for the company, "but it's also necessary." Analysts seem to be in agreement that Cisco's short term pains will be outweighed by long-term opportunities.

The alternative is to wait things out, as IBM did when the market began shifting away from mainframe computers. By waiting too long to pivot, IBM posted an $8 billion loss in 1993, which at the time was the biggest in corporate history. The lingering effects can still be felt today—as IBM continues to find its way, it posted a 14-year low in quarterly sales this past April.

Cisco is in a good place right now. In what it pegged as "another strong quarter," it brought in $12.6 billion in revenue, and $48.7 billion for its full fiscal year.