Cisco Systems, a global leader in networking equipment and technology solutions, has revealed plans to reduce its workforce by 5%, amounting to more than 4,000 jobs, in response to challenging economic conditions. The decision comes amidst a tough economy that has witnessed numerous layoffs across the tech industry this year.

The announcement led to a significant downturn in Cisco’s stock performance, with shares falling over 5% in extended trading following the revision of the company’s annual revenue target. Cisco now projects revenue between $51.5 billion to $52.5 billion, down from the previously forecasted range of $53.8 billion to $55 billion.

CEO Charles Robbins highlighted weak demand from telco and cable service provider customers during a conference call discussing the company’s financial outlook. The ongoing economic uncertainties have prompted clients in the telecom industry to limit spending, resulting in challenges for Cisco’s product demand.

Analysts anticipate continued pressure on demand for Cisco’s products as telecom clients prioritize the clearance of excess inventory of networking gear, leading to an inventory pile-up in the networking hardware segment. However, analysts like Joe Brunetto from Third Bridge remain optimistic that this inventory overhang should resolve by the second half of 2024 or early 2025.

Despite the challenges, Cisco remains committed to growth and innovation. The company is strategically focusing on artificial intelligence and has entered into a partnership with Nvidia to drive expansion. As part of the collaboration, Nvidia will integrate Cisco’s ethernet with its own technology, widely utilized in data centers and AI applications.

Looking ahead, Cisco’s third-quarter revenue is projected to range between $12.1 billion and $12.3 billion, falling short of estimates of $13.1 billion according to LSEG data.

The company’s workforce reduction and restructuring efforts aim to realign resources towards high-growth areas. Sources familiar with the matter had earlier revealed that Cisco was planning layoffs and restructuring to streamline operations and enhance focus on strategic initiatives.

Cisco anticipates incurring charges of $800 million related to the layoffs, consisting of severance and other costs. The majority of these charges are expected to be recognized in the first half of fiscal 2025.

In the second quarter, Cisco reported an adjusted profit of 87 cents per share and revenue of $12.79 billion, surpassing estimates provided by LSEG. Despite the positive quarterly results, Cisco remains focused on navigating the evolving economic landscape and positioning itself for sustainable growth in the future.

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