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Cisco Says It Will Cut Thousands of Jobs Amid Revamp

August 17, 2016, 8:45 PM UTC
Fortune Brainstorm TECH 2016
Fortune Brainstorm TECH 2016 WEDNESDAY, JULY 13TH, 2016: ASPEN, CO 9:00 AM A NEW MODEL FOR CONNECTIVITY Chuck Robbins, CEO, Cisco Interviewer: Andrew Nusca, Senior Editor, Fortune PHOTOGRAPH BY STUART ISETT/Fortune Brainstorm TECH
Stuart Isett

Networking giant Cisco (CSCO) said Wednesday that it would cut up to 5,500 jobs, or around 7% of its global workforce as it tries to adapt to a changing technology landscape.

Although a huge number, the total is fewer than the 14,000 jobs, or 20% of its workforce, that trade publication CRN said on Tuesday that would be eliminated.

Money saved on the cuts will be plowed-back into priority businesses such as security, Internet of things, collaboration, next-generation data center gear and cloud, Cisco chief executive Chuck Robbins said on the earnings call. It’s unclear from that list what, exactly, are low-priority areas, however. Presumably they include Cisco’s older line routers and switches.

That there would be job cuts at a legacy IT provider is almost a forgone conclusion as these companies, many of which made the bulk of their money on pricey, proprietary hardware and software, must adapt to a world in which more companies send more of their computing jobs to a public cloud provider like Amazon @amzn(AMZN)Web Services.

That means fewer data center customers for companies like Hewlett-Packard Enterprise (HPE), IBM (IBM), Cisco, EMC (EMC), and others.

Adding insult to injury, big public cloud providers, which rent out their computing capacity to customers, don’t tend to buy name-brand hardware from companies like Cisco or IBM.

The job cuts will start this quarter, the company said.

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For the quarter, Cisco reported earnings of $2.8 billion, or 56 cents a share, on sales of $12.64 billion. Non-GAAP earnings were $3.2 billion or 63 cents per share, beating analyst expectations of 60 cents per share.

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Cisco shares were off about 1% to $30.40 in after hours trading.

This story was updated during and after the Cisco earnings call.