Cisco confirms layoffs, delays hopes for a recovery

Cisco officials said it's going to take longer than they expected for network operators to resume their traditional spending habits.

"We think that SP [service provider] telcos – the SP telco and cable side of it – we're hopeful that in '25 they will begin investing again," Cisco CEO Chuck Robbins said during Cisco's quarterly earnings call, according to Seeking Alpha. "We originally had anticipated that they would begin to invest in the second half of this year, and we no longer believe that to be true."

That change showed up in the last few weeks, he said.

"What they previously told us 90 days ago ... had changed materially, which means customers are pushing things out ... so that's the difference that we've seen," Robbins continued.

As a result, Cisco lowered its financial outlook and confirmed it will cut around 5% of its workforce, or around 4,000 positions.

To be clear, Cisco is not alone. Calix, Corning, Viavi Solutions and Clearfield are among the telecom equipment suppliers that have warned in recent weeks of an ongoing pause in network operator spending in the US and globally.

Indeed, officials at Ribbon Communications – another telecom equipment supplier that reported its own earnings this week – said as much during the company's quarterly conference call. But Ribbon CEO Bruce McClelland said he expects network operator spending to resume later this year, rather than next year.

"While capex [capital expense] spending by US tier 1 service providers continues to be limited in the first half of the year, we expect this to begin to improve in the second half and be additive to the growth we have seen internationally," he said, according to Seeking Alpha.

The Cisco details

Broadly, Cisco earned $2.6 billion during its latest fiscal quarter, a 5% decrease from the same time during the previous year. Revenue during that period also fell 6% from the prior year, to $12.8 billion.

And the company's shares fell slightly after its earnings release, in part due to fears over Cisco's outlook. The company now expects total revenue of around $52 billion for its current fiscal year, down from prior guidance of around $54.4 billion.

Interestingly, though, Cisco officials reported progress on the company's broad shift from selling hardware to selling software subscriptions. "We are making good progress in our business model shift to more recurring revenue while remaining focused on financial discipline, operating leverage and shareholder returns, as evidenced by our increased dividend," Scott Herren, Cisco's CFO, said in a release.

Cisco said fully 50% of its revenue in its most recent quarter came from such subscriptions, up from 44% in its year-ago quarter and 44% in its previous quarter.

Finally, Cisco officials reported progress in the company's wireless business. "We are encouraged by the number of orders of $1 million or more, which increased approximately 50% sequentially," said CEO Robbins. "This indicates that many wireless customers have finished absorbing what we've shipped to them and are preparing for larger deployments in the coming months."

Robbins added that Cisco isn't yet seeing any threats in its wireless business from the proposed merger between HPE and Juniper Networks. He added that Cisco gained share in the sector during its most recent quarter.

The AI angle

Cisco has said it expects $1 billion in AI orders during its upcoming fiscal year – though that's a change from the company's previous guidance.

"Our pipeline of AI opportunities continues to grow. The pipeline is now almost three times that particular number that we gave last time," Robbins boasted this week.

The company also entered the second phase of its partnership with Nvidia. The companies will sell Nvidia's GPUs combined with Cisco's Ethernet offerings to enterprises and others, with products scheduled to start shipping later this year.

Robbins added that Cisco's AI deal with Nvidia – a star company in the AI sector – sits outside of Cisco's $1 billion AI revenue target.