In the latest reaction of the networking company to market shifts toward software, Cisco Systems Inc. has announced on Wednesday, August 17, its plans to cut 5,500 employees representing 7 percent of its total workforce.
According to The Wall Street Journal, the networking company will incur $700 million of charges related to the cuts that are scheduled to begin this quarter. In its first fiscal quarter, Cisco will also have to deal with post charges of up to $400 million.
Cisco is struggling to adapt to changes in the market, with customers more interested in software over hardware. The networking company has already organized departments focusing on software apps and network security, such as Talos, a security research team part of Cisco Systems.
According to The New York Times, Cisco is one of the largest makers of networking gear in the world. However, the changes on the market are pushing the networking company to shifts focus away from its legacy hardware. Cisco is trying now to focus more toward higher-margin software.
The gradual move to fast-growing areas such as the cloud, the Internet of Things and security is a response to dropping demand from telecom carriers and enterprise customers for Cisco's traditional lineup of networking hardware devices such as switches and routers. This move is happing at a time of intense competition from rival companies such as Juniper Networks and Huawei.
Cisco has experienced a revenue drop of 6 percent at the company's routers business in the fourth quarter ended July 30. Revenue in emerging markets was also down 6 percent and orders from service providers dropped 5 percent. The only field with positive growth has been its switching unit with revenue up 2 percent.
In the first quarter of 2016, Cisco projected flat revenue and expected adjusted earnings of 58 to 60 cents per share. This is shy of Wall Street analysts' estimate of 60 cents.
