Cisco Systems will cut approximately 4,000 jobs, or about 5% of its workforce, as part of an AI-focused restructuring, the company announced on Wednesday. The layoffs come despite a surge in orders, reflecting a strategic pivot toward automation and artificial intelligence to streamline operations and reduce costs.
The job cuts, announced during Cisco’s second-quarter earnings call, are part of a broader effort to reallocate resources toward high-growth areas like AI, cybersecurity, and cloud computing. CEO Chuck Robbins stated, "We are making difficult decisions to ensure we are positioned for long-term success," emphasizing the need to invest in technologies that drive future growth. The restructuring is expected to incur charges of $800 million to $1 billion, primarily in the third quarter of fiscal year 2025.
Despite the layoffs, Cisco reported a 6% year-over-year increase in product orders, driven by strong demand in networking, security, and observability solutions. The company’s revenue for the quarter reached $12.8 billion, slightly below analyst expectations of $13 billion. Robbins attributed the order growth to enterprises upgrading infrastructure to support AI workloads and hybrid work environments.
The restructuring plan follows a series of strategic acquisitions, including Splunk for $28 billion in March 2024, aimed at bolstering Cisco’s AI and data analytics capabilities. The company has also invested heavily in AI-driven networking solutions, such as its Hypershield security platform, which leverages AI to detect and mitigate cyber threats in real time. These moves align with Cisco’s goal to transition from a hardware-centric model to a software and subscription-based business.
Cisco’s workforce reduction is not unprecedented in the tech industry, where companies are increasingly prioritizing AI and automation to improve efficiency. Earlier this year, Microsoft and Google also announced layoffs as part of similar restructuring efforts, citing the need to rebalance teams toward AI and cloud services. Analysts note that Cisco’s move reflects broader industry trends, where legacy tech firms are streamlining operations to compete with cloud-native competitors.
The layoffs will affect employees across various divisions, including engineering, sales, and corporate functions. Cisco has not disclosed specific regions or departments most impacted but indicated that the cuts would be global. The company plans to offer severance packages and outplacement services to affected employees, though details of these programs remain undisclosed.
Cisco’s restructuring comes at a time of heightened scrutiny over tech industry layoffs, with regulators and labor groups questioning the impact of AI-driven job cuts on workers. In the U.S., the Department of Labor has increased oversight of layoffs under the Worker Adjustment and Retraining Notification (WARN) Act, which requires companies to provide advance notice of mass layoffs. Cisco has not commented on whether it has complied with WARN Act requirements.
The company’s pivot toward AI is part of a larger strategy to capture a share of the growing AI infrastructure market, projected to reach $400 billion by 2027. Cisco’s AI initiatives include partnerships with NVIDIA to develop AI-optimized networking solutions and collaborations with cloud providers like AWS and Microsoft Azure to integrate AI into enterprise workflows. These efforts aim to position Cisco as a key player in the AI-driven digital transformation of businesses.