Layoffs are for a better start

Today, let's look at Cisco, a giant in network equipment

Do you believe Cisco's reasons for layoffs?

Just after announcing 5% layoffs in early February, Cisco recently announced another 7% cut.

The two rounds of layoffs this year have resulted in the loss of nearly 10,000 employees. Cisco's CFO stated that the layoffs were not to boost profits but to focus on high-growth areas such as AI and cybersecurity. But do the laid-off employees believe it?

In fiscal year 2024, Cisco found itself in a continuous decline. Since many large enterprises began shifting to cloud computing, Cisco's core networking business has been on a downward trend, with sales sliding in the first three quarters. This led to declines in both revenue and net income.

Even though Cisco has been striving to reduce its reliance on struggling networking equipment, the camel is still bigger than a horse when starved; most of the company's revenue still depends on new equipment installations. The good news is that as customer inventories are largely depleted and demand gradually recovers, sales have improved in the latest quarter. However, revenue has declined, and performance remains unimpressive.

The true growth driver for the company is Splunk, a cybersecurity firm acquired for $28 billion this year.

This is also a crucial step in Cisco's accelerated diversification. In fiscal year 2024, total subscription revenue was $27.4 billion, accounting for 51% of total revenue, with $4.3 billion coming from Splunk, a 22% year-over-year increase.

Furthermore, Cisco launched a $1 billion fund in June to invest in AI startups and partnered with NVIDIA to develop AI system infrastructure.

It is evident that this networking equipment giant, which missed a significant expansion opportunity during the cloud computing era a decade ago, is actively undergoing strategic transformation and increasing its investment in AI. To achieve this, it has laid off 12% of its employees within half a year to allocate resources solely to AI. For Cisco, this transformation is a matter of survival.

However, Cisco's layoffs are not an isolated incident. Haven't you heard about layoffs every now and then? Since the beginning of this year, over 126,000 people have been laid off by 393 tech companies.

It appears that this is part of the ongoing adjustments in the tech industry. With the rise of AI, there is increased demand for cloud computing and cybersecurity due to new technologies. Many tech companies are undergoing similar restructurings to adapt to market changes and maintain competitiveness.

Now, the first wave of people who have lost their jobs due to AI has emerged. Let's see how much success the AI that tech giants are all-in on can achieve.