Analyst says both Cisco and Dell are in a position where they ‘need to streamline operations to maintain profit margins.’
A new round of layoff announcements at Dell and Cisco are a result of both companies currently losing core market share to new industry competitors: Arista Networks for Cisco, in their core networking business, and low-cost PC manufacturers like Acer for Dell, an analyst said Friday.
Scott Bickley, advisory practice lead at Info-Tech Research Group, was responding to major announcements from the two organizations regarding layoffs. The latest occurred Friday, Aug. 9, when Reuters reported that sources, who were not authorized to speak publicly, had revealed that job cuts will likely be announced by Cisco “as early as Wednesday along with its fourth-quarter results.”
According to Reuters, the number of people affected could be similar to or slightly higher than the 4,000 employees Cisco laid off in February.
The Reuters report stated that the company has been “grappling with sluggish demand and supply-chain constraints in its mainstay business. That has pushed the company to diversify, with moves such as its $28 billion buyout of cybersecurity firm Splunk.”
Meanwhile, on Tuesday, a Bloomberg report indicated that Dell is reportedly laying off thousands of staffers from its sales team, “part of the hardware vendor’s reorganization efforts targeted at increasing its revenues from AI-related sales by putting in a new sales unit focused on AI products.”
Info-Tech’s Bickley stated in an email that “combined with tepid customer demand, [both organizations] need to streamline operations to maintain profit margins. They are hiding behind the illusion of investing in AI and cybersecurity, which is partially true but likely not the primary reason for the cuts. Cisco is a second-rate player in the cybersecurity space at best, and they already have an AI plan in place to support hyperscaler infrastructure, so why the cuts now?”
Cisco’s last earnings report in April, he said, “showed a major decline in revenues and net income, which is a disturbing trend for them of late. I view these cuts as an ill-fated attempt to cut their way to profitability. Cisco also reports earnings on August 14. They may be trying to get ahead of another poor-performing quarter and throwing all the bad news into the ‘kitchen sink.’”
Bickley added, “The recent Splunk acquisition likely plays a part in the RIF [reduction in force] as they seek to integrate this company. There is likely an overlap in management talent and sales teams which would need to be rationalized. There will also be a material expense in integrating Splunk into the Cisco core products, which needs to be funded.”
