In a significant turn of events, Cisco Systems Inc. (CSCO) recently disclosed its fourth-quarter 2024 earnings, revealing both a troubling trend and a strategic shift. Despite beating analysts' expectations for earnings and revenue, the company is grappling with declining sales and has announced a substantial reduction in its workforce.
For the third consecutive quarter, Cisco's revenue fell short of expectations, marking its first annual revenue drop since 2020. The networking giant's earnings per share for the quarter were 87 cents, slightly above the anticipated 85 cents, and revenue reached $13.64 billion, surpassing the projected $13.54 billion. However, these positive figures were overshadowed by a broader trend of diminishing sales. The company’s revenue for the fourth quarter plummeted 10% compared to the $15.2 billion reported a year earlier, and Cisco foresees continued revenue decline into the next quarter. For Q1, Cisco anticipates revenue between $13.65 billion and $13.85 billion, down from the previous year's $14.7 billion.
In response to these financial challenges, Cisco is undertaking a significant restructuring plan. The company will cut 7% of its global workforce, translating to thousands of jobs lost. This follows an earlier reduction in February, where Cisco eliminated 5% of its workforce, equating to over 4,000 positions. The restructuring plan will incur $1 billion in pre-tax charges, with $700 million to $800 million expected to hit the financials in the current quarter. The remaining costs will be distributed over fiscal 2025.
The company aims to leverage these cost-cutting measures to reinvest in growth opportunities and enhance business efficiency. Cisco's core networking business, which includes crucial products like switches and routers, has been under pressure due to the broader industry shift towards cloud computing. To counteract this, Cisco has been focusing on expanding its software and security divisions to generate more recurring subscription revenue.
One bright spot for Cisco has been its recent acquisition of Splunk, which closed in March and was the company’s largest deal ever, valued at $28 billion. This acquisition contributed $960 million to Cisco’s quarterly revenue and bolstered its software and security revenue, which rose significantly. However, the company's core networking revenue suffered a sharp 28% decline to $6.8 billion, while security revenue surged by 81% to $1.8 billion. Overall, Cisco’s net income for the quarter fell by 45%, dropping to $2.2 billion or 54 cents per share, down from $4 billion or 97 cents per share a year earlier.
Cisco’s stock experienced a notable rebound in after-hours trading, climbing 5.5% to $47.92. This uptick came in response to the company's strategic moves and its performance exceeding initial forecasts. Nonetheless, with the stock down 10% for the year prior to this rise, the company remains under significant pressure to stabilize its financial performance and navigate through its ongoing restructuring efforts.
In summary, while Cisco has delivered earnings and revenue figures that surpassed analyst predictions, the company's broader financial struggles and workforce reductions highlight a challenging period as it adapts to shifting market dynamics and seeks to bolster its growth through strategic investments and cost-saving measures.
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