According to Zhongtong Finance, Cisco (CSCO. US) announced its Q4 earnings. The data showed that Q4 revenue fell 10.3% YoY to $13.64 billion, with a market expectation of $13.54 billion. Adjusted earnings per share were $0.87, with a market expectation of $0.85. Due to the rebound in orders, Cisco, the world's largest computer networking equipment manufacturer, is optimistic about the revenue in the current quarter, but as part of its strategic transformation, the company plans to lay off thousands of people.

The company said in a statement on Wednesday that first-quarter sales through October are expected to reach $13.65 billion to $13.85 billion, with a market expectation of $13.76 billion; first quarter adjusted earnings per share are expected to be $0.86 to $0.88, with a market expectation of $0.85. Secondly, Cisco expects revenue for fiscal year 2025 to be $55 billion to $56.2 billion, with an analyst expectation of $55.67 billion; adjusted earnings per share are expected to be $3.52 to $3.58, with a market expectation of $3.55.

Cisco's CFO Scott Herren said that the layoffs are not intended to boost profits. He said in an interview that Cisco needs to quickly shift towards cybersecurity, cloud systems, and AI-related products, so it is freeing up resources for these things. Cisco has been working to reduce its reliance on its huge networking equipment business, which has been struggling due to supply chain disruptions and slowing demand after the epidemic.

This layoff will reduce Cisco's existing 90,400 employees by about 7%, which means more than 6,300 jobs will be cut. Cisco said the move will bring about $1 billion in short-term pre-tax costs, of which $0.7 billion to $0.8 billion will be confirmed in the first quarter.

This is Cisco's second large-scale layoff. In February of this year, the company announced job cuts of 5%, or more than 4,000 jobs. Prior to the initial layoff, Cisco had 849,000 employees by the end of fiscal year 2023.

Michael Ashley Schulman, CIO of Running Point Capital, said the layoffs allow Cisco to "continue to focus on growth areas such as software, services, AI, and cybersecurity, while balancing its financial obligations and reducing the proportion of hardware in its product mix."

Meanwhile, Cisco is also digesting the impact of its acquisition of Splunk earlier this year. In order to accelerate diversification and leverage the AI ​​boom, Cisco agreed to acquire the cybersecurity company Splunk for about $28 billion last year, the largest deal in its history. It also launched a $1 billion fund in June to invest in AI startups such as Cohere, Mistral AI, and Scale AI.

Even as Cisco pushes for more software and services sales, most of its revenue still relies on the installation of new equipment. In this regard, it has seen improvement in the past quarter--indicating that enterprise customers are reinvesting in their networks. They previously focused more on installing the devices they had purchased. Cisco CEO Chuck Robbins said on an analyst conference call, "The period of customers digesting inventory is basically over." He noted strong demand in all regions and major product lines, including government customers.

Cisco's product orders grew 14% YoY, which is a closely watched future revenue indicator. Orders in the third quarter were flat YoY, excluding the new acquisition of Splunk. Cisco said that excluding Splunk, Q4 orders increased by 6% YoY.

Cisco is mired in a prolonged decline, with revenue declining for the third consecutive quarter. Since large enterprises began shifting to cloud computing years ago, the company's core networking business (including switches and routers) has been declining. The company has intensified its software and securities business to achieve diversification and bring in more recurring subscription revenue.

Total subscription revenue, including Splunk, was $27.4 billion, accounting for 51% of total revenue. Annual recurring revenue was $29.6 billion, with revenue from Splunk up 22% YoY to $4.3 billion. Total software revenue was $18.4 billion, up 9% YoY, with software subscription revenue accounting for $16.4 billion, up 15% YoY and accounting for 89% of total software revenue.

The company is trying to convince investors that new products and services will help Cisco benefit from spending on data centers and AI. Unlike some hardware manufacturers such as Nvidia (NVDA. US), the company has yet to point out revenues in the field of IoT reaching billions of dollars. Cisco's management team is trying to focus investor attention on its deferred revenue, which they say shows success in moving from one-time purchases to long-term contracts.

Seeking Alpha analyst Ian Bezek said:"Cisco's financial report is slightly better than expected, with profit margins slightly higher than market expectations. Given the recent job cuts at the company, traders have been concerned about the possible downside surprise, which is enough to boost their morale. Having said that, Cisco's forecast for 2025 is only consistent, indicating that the industry still faces huge headwinds in the near future."

Cisco's stock price has fallen 10% this year, but rose more than 5% in after-hours trading following the announcement of its performance.