Networking giant Cisco is planning to restructure its business, which may involve laying off thousands of employees, according to a Reuters report.
The restructuring plans may be announced later this week in an earnings call, according to the Reuters report. Cisco planned to focus on high-growth areas. However, the report does not specify these high-growth areas or the number of employees likely to be laid off. Cisco had 84,900 employees across all geographies by the end of the financial year 2023.
Cisco had earlier announced a restructuring in November 2022, which involved a payment of $600 million in severance and related charges. âCiscoâs decision to restructure and lay off employees is part of a familiar pattern, with a similar move in November 2022, where approximately 5% of its workforce was laid off. This restructuring is often a consequence of Ciscoâs complex organizational structure, which has evolved through numerous acquisitions over time,â said Thomas George, President of CyberMedia Group and CMR.
âSuch mergers can result in redundancies as business divisions are integrated and reshaped, prompting the need to streamline operations, especially in response to slower growth within specific segments,â George added.
Weakening telco capex
If Cisco goes ahead with the restructuring, it will end up joining a growing list of telecom vendors who have handed over pink slips to their employees recently. Finnish telecom vendor Nokia announced it would lay off 14,000 in October last year after disappointing 3Q23 results.
Another global telecom bellwether, Ericsson, announced in August 2023 that it would reduce its workforce by 750 in the US from field operations. Adtran has also recently said it is planning layoffs across its global operations. An Israel-based software and communications service provider, Amdocs also laid off 2,000 employees, or 6.5% of its global workforce, last year.
âAs telco capex moderates, a number of vendors heavily exposed to telecom will engage in layoffs. This has already started happeningâ¦ So, developments at Cisco are not surprising and more such announcements from other companies are likely in the coming months,â said Arun Menon, Principal Analyst at MTN Consulting. âTelco CAPEX, the main driver of telco vendor revenues, is expected to decline in 2024 as telcos are emphasizing plans to minimize CAPEX, grow free cash flow, and deliver more to shareholders, including via share buybacks.â
A key factor behind a weakening CAPEX is the somewhat lackluster response to 5G. Telcos around the world are struggling to monetize investments in 5G. As per a recent GSMA report, 5G will account for only 25% of the total mobile connections by 2025. There is a growing realization that several 5G use cases, like private networks, Fixed Wireless Access (FWA), and Industry 4.0, among others, will take some time before helping the telcos make money.
In addition, the competition from cloud vendors like Amazon Web Services and Microsoft Azure is also impacting telecom vendors, like Cisco. âThe cloud vendors have been investing heavily into the telco vertical for many years and have grown into sizable players. MTN Consulting estimates that they accounted for $5.6B of network infra sales to telcos for the 12 months ending June 2023. Their entry into this market does not grow the pie; they aim to offer competitively priced, innovative services to telcos, and the value proposition is often focused on cost efficiency. They are helping telcos to run their business more cheaply, and that should push down on capex requirements at some point,â said Menon.
Realigning the workforce
There is also a need to realign the workforce in line with the evolving requirements.
âWith the era of AI and generative AI rapidly setting in, a mainstream shift in paradigm toward software-defined networking is inevitable. Tech leaders must act now to acquire a workforce suited for a future that is fast approaching and, consequently, to hive off a workforce that is lagging in new-age skills. As an aside, for workforces to stay relevant in the future, upskilling through continuous learning is the way forward,â said Deepak Kumar, founder analyst and chief research officer at BMNxt Business and Market Advisory.