Shares slide in late trading after Cisco gives dour forecast. Image Credit: Bloomberg

Washington: Cisco Systems Inc., the largest maker of computer networking equipment, plans to cut thousands of jobs after a slowdown in corporate technology spending wiped out its sales growth.

A restructuring plan will affect roughly 5 per cent of Cisco's workforce, the company said Wednesday. It had almost 85,000 employees as of last year, suggesting that the move will involve approximately 4,000 jobs. The restructuring will bring expenses of about $500 million, Cisco said.

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Sales will be $12.1 billion to $12.3 billion in the fiscal third quarter, which ends in April, the company also announced Wednesday. That compares with an average analyst estimate of $13.1 billion. Excluding certain items, profit will be 84 cents to 86 cents a share, versus a prediction of 92 cents.

The company has said that it's been hit by a temporary "pause" in orders from customers who are busy installing equipment they've already acquired. The forecast adds to concern that businesses are reining in tech spending.

Cisco shares, little changed so far in 2024, closed at $50.28 in regular New York trading.

Chief Executive Officer Chuck Robbins is trying to reduce Cisco's sales volatility by offering more networking services "- particularly analytics and security features delivered over the internet. The idea is to focus more on subscription revenue, rather than one-time sales of large networking gear. Adding to that effort, Cisco is acquiring data-crunching software maker Splunk Inc. for $28 billion, a deal announced in September.

But Cisco remains vulnerable to spending downturns, and the current slump isn't over yet. The company's executives have said that they expect a slowdown in ordering to last through the first half of the year.

For financial year 2024, the company is now predicting a range of $51.5 billion to $52.5 billion. Earnings will be $3.68 to $3.74 a share, excluding some items. Both of those targets are below what Wall Street is projecting.

Cisco's adjusted gross margin "- the percentage of sales remaining after deducting the cost of production "- is expected to be 66 per cent to 67 per cent this quarter.

In Cisco's fiscal second quarter, which ended Jan. 27, revenue fell 6 per cent to $12.8 billion. That was the company's first contraction in three years. Profit was 87 cents a share, minus some items. Analysts had estimated revenue of $12.7 billion and earnings of 92 cents a share.

Investors have been waiting to see how much Cisco will benefit from surging spending on artificial intelligence computer systems. Earlier this month, it announced it's working with chipmaker Nvidia Corp. to help corporate clients more easily deploy AI.

Nvidia has been the biggest beneficiary of the AI spending boom, but its customers are typically large data center owners such as Microsoft Corp. and Alphabet Inc.'s Google. By combining forces, the two are hoping to spread the use of the technology. Cisco had previously said it has logged about $1 billion in AI-related orders.