The technology industry bids farewell to the "old aristocracy era"
Recently, Cisco Systems, Inc. announced that it would lay off hundreds of employees in the Bay Area of the United States.
According to documents submitted to the California Employment Development Department, the layoffs will involve Cisco's multiple offices in San Francisco, Milpitas and San Jose. Among them, Cisco's San Francisco office will lay off 134 people, and the Milpitas office will lay off 145 people. The most serious impact of the layoffs is the San Jose office building, where a total of 563 employees will be laid off. These layoffs will take effect on November 15, 2024, and are permanent layoffs.
San Francisco is the birthplace of Cisco and its importance to the company is self-evident, but it has become the hardest hit area in this round of layoffs. According to reports, there are 17 vice presidents and 5 senior vice presidents on the layoff list, as well as many supervisors, managers, analysts and engineers.
Although the specific reasons for the layoffs have not been made public, the reasons can be seen from the results of Cisco's 2024 fiscal year ending July 27, which were released in August. Cisco's full-year revenue was US$53.8 billion, a year-on-year increase of 6%, a slow growth rate. The full-year net profit calculated by GAAP was US$10.3 billion, a year-on-year decrease of 18%. In terms of business segments, the most important segment, network revenue, was US$29.2 billion, a sharp drop of 15%. Cisco expects the company's revenue in fiscal 2025 to be between US$55 billion and US$56.2 billion, slightly lower than market expectations.
After the earnings conference, Cisco admitted in a document submitted to the U.S. Securities and Exchange Commission that the company was implementing a restructuring plan. In order to control operating costs and focus more on high-growth areas such as artificial intelligence and cybersecurity, the company will lay off 7% of its global employees. Based on Cisco's global workforce of about 85,000, the layoffs will affect 6,000 people.
Interestingly, one netizen posted on social media that "most of the people on the layoff list are old employees. One of Cisco's strategies for layoffs this time is: age + length of service = 75."
This 40-year-old technology company seems to hope to regain its youthful vitality through this large-scale layoff.
01
Not only in Cisco's home base, the Bay Area in the United States, but also in the Chinese market where Cisco's business is declining, it has become one of the key areas for Cisco's drastic layoffs.
According to media reports, Cisco Dalian employees officially received layoff notices on September 18. Blue card (regular) employees are expected to lay off 300 people, mainly involving Japanese and Korean projects and TAC (technical after-sales). It is reported that Cisco has given two "layoff packages", and those who leave immediately can get "N+7", and those who leave two months later can get "N+5". Judging from social platforms, Cisco Dalian employees generally responded calmly and were relatively satisfied with the compensation plan.
After all, the employees also know that Cisco's "good days" in the domestic market are long gone, and it might be better for them to withdraw in time.
The Sino-US trade dispute has dealt a heavy blow to Cisco's business in China. For security reasons, Chinese and American companies are more inclined to choose domestic companies when choosing infrastructure equipment partners. Cisco has suffered a significant impact in the Chinese market, and its business in China has gradually shifted to India or Japan.
However,
Cisco did not completely abandon the Chinese market, but instead shifted its focus to the manufacturing industry so that it can fully leverage its technological advantages.
In June, Cisco Greater China head Huang Zhiming said that as Chinese electric vehicle manufacturers accelerate their overseas expansion, Cisco is "very optimistic" about the growth prospects of this field of business, and the electric vehicle business has become Cisco's second largest source of revenue in Greater China. According to him, Cisco has close cooperation with at least 10 electric vehicle companies, assisting Chinese companies in building factories, offices and R&D centers overseas.
At that time, Huang Ming was optimistic about Cisco's future prospects in China. He believed that Cisco had unique advantages in GPU connection solutions and was compatible with the artificial intelligence chip market dominated by Nvidia, which would be very attractive to Chinese companies intending to go overseas, and the company was expected to achieve business recovery within the year.
02
Once upon a time, Cisco almost monopolized the global market for routers, switches and other network equipment. It also sued Huawei for ten years for infringement, forcing Huawei to establish its own network certification system. However, the long-term monopoly of the network equipment market has also made Cisco gradually lose its enterprising spirit and innovative spirit, and it has been "living off its past achievements".
If the shrinking business in the Chinese market can be attributed to uncontrollable factors, then the "cutting down" on senior executives in its own hometown can only mean that Cisco really needs to make bigger changes.
In the technology industry, Cisco is an "old-fashioned" company. According to statistics, the number of employees who have worked at Cisco for more than 25 years exceeds that of employees who have worked for 5 years. On the one hand, such personnel mobility ensures the stability of the company's business, but on the other hand, it also shows that Cisco lacks vitality. Cisco's network business, which is its foundation, has become more and more common in the technology industry, and the company's global presence has become weaker and weaker.
In terms of absolute scale, Cisco is still the largest network equipment seller, but how to stimulate users' continued purchases has always been a headache for it. Network equipment is purchased in large quantities at one time, but it tends to be a one-time deal, and updates and iterations are not frequent.
Charles Robbins became CEO of Cisco in 2015. Under his leadership, Cisco accelerated its transformation from a traditional network equipment hardware supplier to a comprehensive service company.
In recent years, Cisco has been promoting the "XaaS strategy", that is, everything as a service, to stimulate users to purchase its products in the long term. Cisco has repeatedly emphasized that although most people still regard Cisco as a hardware manufacturer, hardware, software and services are often packaged together.
In 2021, Cisco changed the name of its switching and routing business from Infrastructure Platform to Secure Agile Network, further emphasizing the necessity of security services for network equipment.
In 2023, Cisco acquired four security companies in succession, including threat detection platform Armorblox, identity management platform Oort, cloud security platform Valtix and Lightspin. Subsequently, Cisco acquired network security company Splunk for US$28 billion, which was the company's largest deal in history and even put pressure on its book funds.
Splunk's main business is data monitoring subscription services, and it is a world leader in SOC (Security Operation Center) and abnormal event detection. Enterprise users can monitor the network health status of internal systems, network security risks, etc. The company had more than 15,000 customers worldwide before the acquisition. After the acquisition, Splunk can bring $4 billion in recurring revenue to Cisco each year.
In the face of public doubts, Cisco Chairman Robbins expressed confidence in the necessity of the acquisition. He said: "The IT landscape is changing faster than we have ever seen. With hyper-connectivity, artificial intelligence and increasing cyber threats, the value of data will only increase."
Cisco believes that after integrating Splunk's products and services, Cisco can better use AI technology to help corporate customers shift from "post-event response" to "pre-event prevention" in network threat monitoring, provide full-end visualization solutions, and make customers' networks more secure and resilient.
Cisco believes that perceptible full-process safety management is the focus of its operations.
“Most clients still want some form of co-management. Clients don’t want someone to do everything for them without them knowing about it.”
It is reported that Cisco and Splunk have completed the "dual-track parallel" integration strategy. Cisco Talos intelligent threat intelligence platform can be seamlessly integrated into the existing SOC, achieving plug-and-play. The newly launched AppDynamics Log Observer Connect can combine AI assistants and Splunk Log Observability with Cisco's application performance management (APM), helping users make decisions faster and more accurately than ever before.
Currently, Cisco is stepping up the reorganization of its corporate departments. The network, security and collaboration teams have been integrated into one group, and Jonathan Davidson, the former head of the network business, has been appointed as an advisor to the CEO.
Affected by the reorganization, the Talos Intelligent Threat Intelligence Platform team also had personnel changes, and the introduction of new vitality also meant that old people were destined to be eliminated.
03
In the ever-changing technology world, Cisco is a somewhat boring company. After experiencing the plunge in the dot-com bubble at the beginning of the century, Cisco's market value has not changed much in the past two decades, stabilizing in the range of US$100 billion to US$200 billion.
Cisco has been unable to find growth in the past decade due to its conservative approach in the cloud era, and can only make adjustments around its hardware base. As the world enters the AI era, Cisco has repeatedly stated that it will not repeat the mistakes it made in the cloud era.
In June, Robbins promised at Cisco Live that the company would move faster than ever before to get a leg up on AI: "When the cloud era came, we were probably not as prepared as we should have been. With the AI era coming, we are very prepared."
Since the beginning of this year, Cisco has been active in the field of AI.
Cisco has established a $1 billion global investment fund and made strategic investments in well-known AI startups such as Cohere, Mistral AI and Scale AI. Cisco has also partnered with NVIDIA to launch the Nexus HyperFabric "AI Cluster Solution" to assist customers in designing, deploying, monitoring and securing their AI devices and data center workloads.
In addition, to enhance the AI skills of partners and customers, Cisco announced the AI Fundamentals for Partners training program to help customers better use Cisco's tools and services to optimize the infrastructure for AI workloads.
Of course, Cisco has not forgotten to leverage its advantages in the field of professional skills.
For a long time, Cisco certification has been a benchmark in the Internet field. Holding a Cisco certification, especially the CCIE certificate, is regarded as the "golden signboard" of network engineers' professional skills and has a great effect on career advancement.
As AI becomes more prevalent in the technology industry, companies also need new assessment systems to help judge employees' AI skills. This year, Cisco announced the launch of a new certification for designing modern artificial intelligence architectures to help companies build an "AI-ready" workforce. There is no doubt that this will be a business with great market demand.
But does Cisco really take AI that seriously? Not necessarily.
So far, Cisco has received more than $1 billion in AI orders from major customers, and it is expected to receive another $1 billion in AI product orders in fiscal year 2025.
In terms of absolute scale, the revenue added by AI to Cisco is only a fraction of its main business revenue. The importance of AI to Cisco is more reflected in its future blueprint rather than its financial performance.
To some extent, no matter how good the slogan is, Cisco has never thought of deviating from its main business line. Strengthening the AI label is more of a way for this old giant to highlight that it can still grasp the opportunities and challenges brought by the AI era.
This is similar to the situation and approach IBM is facing. Interestingly, IBM also announced a layoff plan in the Bay Area, just like Cisco. IBM will lay off 58 and 54 employees in its San Francisco and San Jose offices respectively. These layoffs will take effect on November 18 and are also permanent.
The layoffs and business adjustments at Cisco and IBM are strategic breakthroughs for established technology companies. The "old aristocrats" once known as "nursing homes" have finally lowered their profiles and embraced the challenges under the impact of the AI wave.
This is also another case that needs to be studied for the "young" Chinese "tech upstarts".
Note: The cover image is from the Douban movie "Squid Game" stills
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