Cisco's Expanded Partnership With Nvidia Overshadowed By The "Price" It Has To Pay For Its AI And Cybersecurity Shift

Cisco Systems Inc CSCO joined Alphabet GOOG, Amazon.com Inc AMZN,Microsoft Corporation MSFT in entering 2024 with job cuts as it announced it will be decreasing its workforce by 5% which implies eliminating about 4,250 jobs. Although Cisco reported it expanded its AI deployment and management partnership with Nvidia Corporation NVDA earlier in February, its good news were dimmed by a light forecast, both for the current quarter and the full year. By deepening the partnership with Nvidia, Cisco got to focus on data centers. Cisco and Nvidia will provide easy to deploy and manage AI infrastructure solutions to data centers. Through their purpose-built Ethernet networking-based solutions, Nvidia and Cisco promise to enable the massive computing power that companies need to make it in the AI era.

Cisco’s Fiscal Second Quarter Highlights

For the quarter ended on January 27th , Cisco reported that revenue declined 6% YoY. Networking products brought $7.08 billion, slightly below StreetAccount’s $7.10 billion consensus estimate.

Net income also fell to $2.63 billion, with earnings per share falling 3%. Adjusted earnings amounted to 87 cents, topping LSEG’s estimate of 84 cents.

A Cautious Outlook Due To Macroeconomic Challenges

Cisco expects to its $28 billion acquisition of machine learning and cyber security software maker Splunk during the current, third fiscal, quarter, or early in the second calendar, which is fiscal third, quarter. EU antitrust regulators have set March 13th as a deadline to decide whether they’ll clear Cisco’s bid that would help reduce its reliance on its networking equipment business that has faced both a slowdown and supply chain challenges.

For the current, fiscal third, quarter, Cisco guided for 84 to 86 cents in adjusted earnings per share and revenue in the range between $12.1 billion and $12.3 billion. 

As for the full fiscal year, Cisco guided for adjusted earnings between $3.68 and $3.74, and revenue between $51.5 billion and $52.5 billion. However, this guidance does not account for the impact from Splunk.

Getting Into AI Has Its Cost, And It’s A Hefty One

Considering that even Microsoft, Amazon and Google kicked off the new year by slashing staff, these layoffs clearly indicate tighter times for tech companies. With tech companies pouring billions into AI development, Cisco merely followed suit and joined Microsoft, Amazon, Google, as well as PayPal Holdings Inc PYPL and Duolingo Inc DUOL, with Layoffs.fyi. estimating that 34,000 tech employees have been laid off year-to-date. In January, Google dismissed hundreds of employees from hardware and internal software divisions to reverse its pandemic hiring spree. Amazon announced targeted job cuts across its film and television studio, with Audible and Buy With Prime divisions also cutting 5% of their workforce. PayPal will be reducing its workforce count by 9% this year, after announcing a 7% cut last year. After its acquisition of Activision Blizzard that will undoubtedly strengthen its position in gaming, Microsoft needed to sacrifice about 8% of its video game staff which represent less than 1% of the tech titan’s total workforce. Therefore, the internet networking pioneer, Cisco, is merely doing what everyone else is. Downsizing and layoffs are merely the cost of focusing on key priorities and growth areas such as AI.

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