Cisco Systems Inc said it would cut nearly 7 percent of its workforce, posting charges of up to $400 million in its first quarter, as the world's largest networking gear maker shifts focus from its legacy hardware towards higher-margin software.
The gradual move to fast-growing sectors such as security, the Internet of Things and the cloud is a response to sluggish demand for Cisco's traditional lineup of switches and routers from telecom carriers and enterprise customers, amid intense competition from companies such as Huawei and Juniper Networks Inc.
Savings from up to 5,500 job cuts would be reinvested into key growth areas, Cisco said.
"We think this is partly an effort by (CEO) Chuck Robbins to put a stake in the ground and send a message that this is going to be a leaner, meaner Cisco that is focused on driving software and recurring revenue business," said Guggenheim Securities analyst Ryan Hutchinson.
Revenue at the company's routers business fell 6 percent in the fourth-quarter ended July 30, while switching unit revenue was up 2 percent. Orders from service providers fell 5 percent, while revenue in emerging markets fell 6 percent, Cisco said.