Cisco CEO Chuck Robbins cited ‘several $100 million-plus transactions in the quarter.’

Deep cuts at Cisco Systems appear aimed at readying the 40-year-old networking giant for increased customer demand to modernize technology for improved security and artificial intelligence growth – areas where Cisco partners can see business gains in the new fiscal year.

These are some of the biggest takeaways from the latest quarterly earnings report by the San Jose, Calif.-based company – and CRN 2024 Channel Chiefs member – with Cisco revealing more signs of customer excitement for the AI era. Cisco’s 2024 fiscal year ended July 27.

[RELATED: The 10 Biggest Tech Company Layoffs Of 2024 (So Far)]

Cisco Layoffs

Cisco’s own excitement for the AI era came through in an optimistic forecast for the first quarter of fiscal year 2025. The vendor predicts revenue of $13.65 billion to $13.85 billion, above Wall Street consensus by $215 million, according to a report from William Blair.

The vendor’s full fiscal year revenue forecast of $55 billion to $56.2 billion is in line with Wall Street expectations and represents 3 percent year over year growth including Splunk, according to the investment firm.

The customer demand environment appears headed in Cisco’s direction, with CEO Chuck Robbins (pictured) citing “several $100 million-plus transactions in the quarter with global enterprises who are leveraging the breadth of our technology platforms to modernize and automate their network operations and deploy next generation machine learning and AI applications” during the vendor’s quarterly earnings call Wednesday.

Cisco also saw product orders grow 14 percent year over year including Splunk, 6 percent year over year excluding the subsidiary. A year ago, orders fell 14 percent, according to a Bank of America report.

And last quarter, product orders were flat without Splunk, 4 percent with it, according to William Blair. The data supports “the thesis that networking demand has troughed, setting the stage for a recovery in fiscal 2025.”

Here’s more on the Cisco layoffs and AI and security opportunities ahead for the vendor and its partners.

Mass Layoffs To Meet Opportunities

Cisco confirmed massive layoffs Wednesday with plans to cut about 7 percent of its global workforce, which should cost up to $1 billion and affect upwards of 6,000 people, based on the vendor’s 84,900 headcount as of July 2023 – the latest number reported by Cisco.

The vendor said in a regulatory filing that the cost will mostly consist of severance, one-time termination benefits and other costs.

Cisco will spend between $700 million and $800 million in the first quarter of its 2025 fiscal year. The 2024 fiscal year ended July 27.

Robbins said on the earnings call that his team is “shifting hundreds of millions of dollars into AI,” including AI networking for cloud, AI infrastructure, silicon and cybersecurity – part of the reason for mass layoffs.

“It’s a meaningful shift, but we feel like the market is moving so quickly, we have to do that,” he said.

On the call, Scott Herren, Cisco executive vice president and CFO, said the restructuring and layoffs of about 7 percent of the global Cisco workforce is not about saving costs, but “finding efficiencies across the company so that we can pivot more resources, much like we did last year, into the fastest growth areas within the company.”

Herren added on the call that the company should see savings “by putting more work into lower-cost locations.”

Davidson Moved To Adviser

Along with confirming a reported workforce reduction, Cisco revealed Wednesday that Jonathan Davidson – who has spent a combined 22 years with the vendor – has moved from his role as executive vice president and general manager of the networking business to serving as an adviser to Robbins.

Davidson left Cisco in 2010 for a seven-year stint with Juniper Networks before returning to Cisco in 2017, according to his LinkedIn account.

“He believes deeply in the power of connection and has demonstrated care and commitment to his teams, Cisco’s innovation and technology, and communities around the globe through his passion for providing digital access for all,” Robbins said in a blog post. “We are grateful for his many years of leadership.”

Patel Heads Newly Combined Org

Jeetu Patel, EVP and general manager of the security and collaboration business units, will lead a unified networking, security and collaboration organization and take on the role of EVP and chief product officer.

Patel has been with Cisco for about four years. He came to the vendor after about five years with Box, leaving the content cloud provider in 2020 with the title of chief product officer and chief strategy officer, according to his LinkedIn account.

On Wednesday’s earnings call, Robbins said that Cisco’s “biggest competitive differentiation in the marketplace” is “deep, cross-integration across the portfolio.”

The pace of AI innovation and the growing combination of security and network led to Robbins’ decision “to have a single leader,” he said.

In the Wednesday blog post, the vendor said that consolidating the three business units should help “accelerate our product innovation and bring our portfolio together in a more integrated way than ever before.”

“It will also allow us to provide a better, unified experience for our customers and partners, while delivering unique solutions to help them achieve their technology outcomes and drive business growth,” Robbins said in the blog post.

The vendor will also work to “to integrate the Splunk product line into this new organization at the right time.”

Patel “has led by example with his creative vision and intense focus on innovation and swift execution” and helped increase growth in the security and collaboration businesses, according to Robbins’ post.

“We’ve seen double-digit bookings growth in our devices business as a result of AI innovation and our open strategy that embraces competing meetings solutions in the market,” Robbins said. “He continues to champion innovation in generative AI across our security and collaboration offerings, bringing differentiated capabilities to Webex and driving the vision for a unified AI Assistant across Cisco.”

Cisco And AI

Cisco executives revealed Wednesday that it crossed $1 billion to date in AI orders with webscale customers and predicts another $1 billion in AI product orders this fiscal year.

Cisco’s $1 billion in expected AI orders in the 2025 fiscal year “doesn’t have a meaningful amount of enterprise built into it” at this time, with Cisco only now “beginning to see the enterprise pipeline build a bit,” Robbins said on the call.

He added that the $1 billion should be primarily back-end network deployments and a combination of Ethernet and optics.

Robbins said on the call that enterprise customers have been “upgrading their infrastructure in preparation for AI.”

“In some cases, they’re taking some of the dollars that they’ve set aside for AI to actually spend it on modernizing their infrastructure in order to get ready for that,” Robbins said. “We’re beginning to see customers actually prepare for AI applications – even though, in many cases, they may not know the full range of what they will be deploying. But they know they need to be ready.”

Enterprise platform deals have included customers “buying the entire portfolio to refresh their infrastructure,” and some customers “are updating their data center infrastructure and their core network infrastructure to be ready for smaller training models on their own private data and/or inference,” Robbins said. Customer use cases have ranged from enabling AI-powered robotics to AI-powered supply chain visibility.

The AI revolution has also helped with legacy Cisco businesses. Data center switching grew double digits year over year, he said. And Cisco saw “three of the top four hyperscalers deploying our Ethernet AI fabric.”

Cisco And Security

The AI era means customers improving cybersecurity postures and building a more resilient and agile digital footprint, Robbins said.

The vendor has added 230 more extended detection and response (XDR) customers and is “pushing 600 customers on that platform, which– it’s a pretty significant decision when customers make that decision, so that’s encouraging,” he said.

Cisco’s cloud edge security product “is actually ramping even faster than XDR did,” he said. The vendor also has 2,200 customers using Cisco’s AI assistant for security product.

The vendor reported a double-digit number of deals that have closed with Cisco and Splunk sales forces selling together, and Splunk saw double-digit growth in annual recurring revenue. Splunk has a six- to nine-month sales cycle normally, so the subsidiary is progressing “maybe even a little ahead of what I would have expected at this point,” Robbins said.

Robbins said that Cisco is investing in “cross-sell incentives for Splunk on the Cisco sales force.” Gary Steele, Cisco’s president of go-to-market and formerly president and CEO of Splunk, “is focused on simplicity” and “more frontline quota-carrying reps,” Robbins said.

“We’re going to incent the security sellers inside Cisco,” he said. “We’re looking at the Splunk sales force over time being able to sell the security portfolio from Cisco.”

When asked about what customers are buying networking and security together, Robbins said it is mostly by large enterprises and large public sector users.

“In the quarter, we had large enterprise and large public sector customers that actually executed all these nine-figure deals,” he said. “You’re seeing it particularly at the cloud edge, when you see SD-WAN and cloud security coming together. But we’re also beginning to see it – and we’re going to actually drive it – in the data center with Hypershield, where you have security embedded deeply in the network.”

Robbins said Hypershield will be “available this fall.”

Splunk brought in $960 million in total revenue for the fourth quarter, according to the vendor. For the quarter, security product revenue including Splunk grew 81 percent year over year. Taking out Splunk, security grew 6 percent.

In security, Herrin said the vendor saw “growth in SASE and double-digit growth in network security.” Observability with Splunk grew 41 percent. Taking out Splunk, observability grew 12 percent.