Cisco, a prominent networking equipment manufacturer, has lowered its revenue outlook in the wake of reduction in Capex by telecom and cable operators.

Previously projected at $53.8 billion to $55 billion, Cisco now anticipates its revenue for the fiscal year to range between $51.5 billion and $52.5 billion. Cisco CEO Charles Robbins attributed the revised outlook to persistent weak demand from telco and cable service provider customers.

MTN Consulting recently said telecoms Capex (capital expenditure) for 2023 will be around $300 billion – $310 billion as compared with $328 billion recorded in 2022.

For instance, Altice USA today said its Capex will be $1.6 billion to $1.7 billion in 2024 as compared with $1.70 billion in 2023.

Altice USA said Q4 2023 capital intensity was 12.8 percent (7.9 percent excluding FTTH and new builds) and improved by decline of 45.6 percent. The capital intensity of Altice USA in 2023 was 18.5 percent (10.5 percent excluding FTTH and new builds) and improved by decline of 10.9 percent.

During a conference call, Charles Robbins acknowledged the ongoing challenges, stating, “We continue to see weak demand with our telco and cable service provider customers.” Analysts foresee sustained pressure on demand for Cisco’s products as telecom industry clients curtail spending, focusing on clearing excess inventory of networking equipment.

Joe Brunetto, an analyst at Third Bridge, predicted that the accumulation of networking hardware inventory would likely dissipate in the second half of 2024 or early 2025.

Cisco does not reveal the size of its revenue from telecom and cable operators.

Despite these challenges, Cisco remains committed to innovation, particularly in the realm of artificial intelligence (AI). The company is strategically partnering with Nvidia to drive growth, with CEO Robbins announcing an agreement wherein Nvidia will integrate Cisco’s ethernet technology into its own, widely used in data centers and AI applications.

For the third quarter, Cisco projects revenue between $12.1 billion and $12.3 billion. However, the company anticipates incurring charges of $800 million related to the layoffs, primarily consisting of severance and other costs. The majority of these charges are expected to be recognized in the first half of fiscal 2025.

In the second quarter, Cisco reported an adjusted profit of 87 cents per share and revenue of $12.79 billion.

Cisco’s total revenue fell 6 percent to $12.8 billion in the October-December quarter of 2023. Cisco’s networking revenue dropped 12 percent to $7.081 billion.

Cisco Systems has announced plans to reduce its workforce by 5 percent, amounting to more than 4,000 job cuts. The company currently employs 85,000 individuals.

Baburajan Kizhakedath