Global telecom vendor, Cisco, could be following other companies in the sector by restructuring its operations, leading to the possible redundancy of thousands of workers.
According to a report by Reuters, networking giant Cisco is considering a restructuring of their business, which could result in thousands of job losses.
The communications firm might reveal its restructuring plans during this week’s earning call, according to the same article. The plan would see Cisco focusing more on areas of high growth although details regarding these areas and the number of potential layoffs were not specified. As of the end of the 2023 fiscal year, Cisco had a total of 84,900 employees worldwide.
In November 2022, Cisco had previously announced a restructuring that resulted in spending of $600 million on severance packages and related costs. As Thomas George, President of CyberMedia Group and CMR, highlights, “This is not unheard of for Cisco. They underwent a similar restructuring in November 2022, resulting in around 5% of their workforce being let go. These actions are often a response to the communicational challenges posed by Cisco’s multifaceted organizational layout, a consequence of multiple acquisitions over time.”
“Such 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,” George added.
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.
“As telco capex moderates, a number of vendors heavily exposed to telecom will engage in layoffs. This has already started happeningā¦ So, developments at Cisco are not surprising and more such announcements from other companies are likely in the coming months,” said Arun Menon, Principal Analyst at MTN Consulting. “Telco 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.”
A key factor behind a diminishing CAPEX is the somewhat muted reaction to 5G. Global telcos are finding it challenging to obtain a return on their 5G investments. A recent report from GSMA suggests that by 2025, 5G will only make up 25% of all mobile connections. There is a growing understanding that many 5G applications, including private networks, Fixed Wireless Access (FWA), and Industry 4.0 among others, will take some time before they become profitable for telcos.
Furthermore, cloud vendors such as Amazon Web Services and Microsoft Azure are also putting pressure on telecom providers, like Cisco. “Cloud vendors have been pouring investments into the telecom sector for many years and have become significant players. MTN Consulting estimates that they accounted for $5.6B of network infra sales to telcos for the 12 months that ended in June 2023. Instead of expanding the market, they aim to offer competitively priced, innovative services to telcos, with a value proposition often focused on cost efficiency. They are helping telcos run their businesses more economically, which should eventually decrease capex requirements,” commented Menon.
There is also a pressing need to adjust the workforce in accordance with changing demands.
“As the era of AI and generative AI rapidly progresses, a major shift towards software-defined networking is unavoidable. Technology leaders must act now to secure a workforce that is suited for a rapidly approaching future and, as a result, must phase out a workforce lacking new-age skills. In an additional note, for workforces to remain relevant in the future, upskilling through continuous learning is the path ahead,” stated Deepak Kumar, the founder analyst and chief research officer at BMNxt Business and Market Advisory.
