Cisco confirmed that five percent of its workforce would be laid off in its most recent earnings call while revealing that collaboration sales grew for the second consecutive quarter.
In Cisco’s earnings call for Q2 FY2024, the vendor announced that collaboration sales had grown three percent — the same as in Q1. Chairman and CEO Chuck Robbins and CFO Scott Herren credited the growth to new collaboration software releases, collaboration devices, and calling, but meeting revenues declined, which “partially” undermined collaboration’s growth.
Scott Herren, CFO at Cisco, commented:
Collaboration was up 3 percent, driven by growth in collaboration devices and calling, partially offset by a decline in meetings(…)
Robbins explained in the investor Q&A that customer interest in collaboration devices and calling was partly motivated by them still working out what model of hybrid workplace works for them.
“They are at various phases of still dealing with this hybrid work situation,” Robbins said. “We had a very strong quarter with our devices, our video device businesses. We see customers investing in their customer experience through technologies like contact centre.”
However, despite the growth in collaboration, security (three percent) and observability (16 percent) sales — bolstered by Cisco’s acquisition of AI security business Splunk and new solutions like XDR and Secure Access and the Cisco Digital Experience — there was less positive news across the earnings call.
As reported earlier this week, Cisco formally announced it was cutting five percent of its workforce.
“We are realigning our investments and expenses to reflect the current environment to help maximize long-term value for our shareholders,” said Herren. “As part of our announced restructuring plan, we expect to impact approximately five percent of our global workforce with estimated pre-tax charges of approximately $800 million.”
Networking revenues, a key business arm for Cisco, had declined 12 percent, contributing to a decline in total revenues (six percent) to $12.8 billion, as did “flat” software sales remaining at $4.2 billion.
This slowdown in revenue saw Cisco lower its full-year outlook for FY 2024 for the second successive quarter, from $53.8 billion-$55.0 billion in Q1 to $51.5 billion-$52.5 billion.
“This industry has seen significant pressure, and they are adjusting deployment phasing, which is weighing on our business outlook,” Robbins added. “Given these factors, we are adjusting our expenses and investments to reflect the current environment.”
Robbins also cited customers taking their time to deploy the “elevated levels of products shipped to them” as factors behind the cautious performance, as full implementation and adoption of solutions such as AI and advanced networking hardware is proving more gradual than anticipated.
As a result of the confirmation of layoffs, compounded by Cisco lowering its full-year outlook again, Cisco’s stock fell 4.7 percent in late trading.
What Were The Other Key Figures From The Call?
For Q2 FY2024, Cisco’s non-GAAP net income recorded a slight decrease of 3 percent to $3.5 billion, while non-GAAP earnings per share exceeded its projected range, reaching $0.87, marking a marginal decrease of 1 percent.
Software revenue remained flat while witnessing a 5 percent surge in software subscription revenue. Notably, subscription-based revenue accounted for 88 percent of Cisco’s Software revenue. Overall, subscription revenue climbed by 6 percent to $6.4 billion, constituting half of Cisco’s total revenue — an increase of six percentage points compared to the previous year.
Product revenue declined nine percent, while service revenue grew four percent.
Cisco’s February
It’s been a busy month already for Cisco.
News about its planned layoffs was reported before this week’s earnings call, while it had a momentous Cisco Live Amsterdam last week.
Cisco launched a Webex app for the Apple Vision Pro at the event, which is now available on the App Store for visionOS, with Jeetu Patel, Cisco’s Executive Vice President and General Manager of Security and Collaboration, describing the device as “one of the most consequential devices of our times” during Cisco Live’s keynote.
It allows users to engage in immersive meetings through Apple’s spatial computing device. Webex joined Microsoft Teams and Zoom as part of the Vision Pro’s app library upon its launch last Friday, February 2.
Also, at Cisco Live, the vendor unveiled a “first-of-its-kind” Identity Intelligence solution which resides within the Cisco Security Cloud and is complemented by several new AI-powered security capabilities.
Lastly, the business announced a swathe of AI Assistant features had become generally available for Webex Suite and Contact Center customers. The features include automatic meeting and vidcast summaries and automatic translation. Cisco also unveiled a Low Carbon Mode that provides location-based insights to manage energy consumption when low-carbon energy is unavailable.
