Key takeaways

This week, Cisco started implementing layoffs totaling 5% of its workforce.

At the same time, Cisco is actively hiring for new roles. The company says this is part of a restructuring, and workers it cannot place internally will receive severance packages.

Recently, the tech sector has been making headlines for layoffs. While noteworthy, it doesn’t mean these employment losses represent the job market as a whole.

Earlier this week, Cisco was the latest tech company to implement mass layoffs. These layoffs were anticipated, but which employees would be affected was only as good as anyone’s guess.

Even though these tech layoffs are massive for the industry, they’re not representative of the job market at large. Instead, they’re symptomatic of the strange circumstances present in our current economy.

Unless some of those circumstances change, things could get worse in this market sector.

Earlier this week, anticipated layoffs began at Cisco. The company laid the ground for the layoffs last month, announcing that approximately 4,100 employees would lose their positions. This equates to about 5% of the company’s workforce.

While this is a good reason to panic for those employees, it appears Cisco has worked to minimize the fallout. The company is restructuring and is actively hiring for new positions at the same time these layoffs are happening.

Cisco said it is attempting to retain employees where it can, moving them from departments that are shutting down into new, open positions. At the end of the year, Cisco plans to have just as many employees as they had at the beginning.

For those employees who are losing their jobs, Cisco has said it would provide “generous severance packages.”

The restructuring excuse is one that Cisco used for a round of layoffs in 2021, even as it was hiring en masse for other departments.

Cisco’s Financials

The layoff announcement came out just ahead of the company’s Q1 2023 earnings call last month. The call revealed some numbers for the tech giant that were better than anyone was expecting.

Consolidated revenue experienced 6% growth year-over-year to $13.6 billion. However, net income was down 10% to $2.7 billion.

Cisco hasn’t been incredibly forthcoming about which departments have to worry about their jobs amid these layoffs, but it released numbers showing revenue by product.

These are the percentages of year-over-year growth by product:

Agile Networks: Up 12%

End-to-End Security: Up 9%

Optimized Application Experiences: Up 7%

Services: No change

Internet for the Future: Down 5%

Collaboration: Down 2%

Other Products: Down 47%

Throughout 2022, Cisco’s stock has taken big hits, much like the rest of the tech sector. It started the year at $62.90 on January 3, 2022, and fell to its lowest point of $38.60 on October 13, 2022. The stock is sitting at $47.81 as of December 16, 2022.

Contextualizing tech layoffs

There’s a lot in the news about tech layoffs. While it’s a tough time for thousands of workers, putting these layoffs into perspective is also important.

The American economy is made up of about 153.5 million jobs. Tech workers make up an estimated 2% of this number.

Even though the layoff numbers we’ve seen over the past few months have been significant, including over 11,000 at Meta, 3,700 at Twitter, and 1,000 at Stripe, they’re minuscule compared to the economy as a whole.

The tech sector also operates differently than other sectors of the market. Its financial success and failures are tightly tied to how the stock market is performing overall.

In good times, investors are more comfortable taking the big but often profitable risks presented by investing in the tech sector. When the stock market isn’t looking so hot, these cash injections tend to dry up.

Another thing that has disproportionately hit the tech sector in 2022 is the U.S.’s trade relations with China.

The overall economy is not experiencing the same trends in terms of labor. There are 1.7 jobs open for every unemployed American. Unemployment is at a 50-year low, and companies still can’t hire quickly enough.

The leisure and hospitality sector, which makes up 10.4% of the economy, is having trouble finding enough workers. Other booming industries in terms of job creation include construction and manufacturing, though it is expected that these two fields will cool down in 2023.

The news coming out of the tech sector is scary. But it’s not reflective of the job market as a whole.

Inflation

Aside from the tech industry, the rest of the job market might be too hot. When there are more jobs than workers, companies are incentivized to offer more favorable hiring terms, like higher wages.

This is a good thing for an individual consumer living in a time of notable inflation. It can help them keep up with their bills and sustain their lifestyle.

But when we look at the bigger picture, it could be bad if we want inflation to stop. As companies pay higher wages, they’re likely to increase prices to cover the difference in their bottom line.

If the job market remains hot, workers can demand higher wages to afford runaway costs, which pushes those same prices even higher.

The tech sector is likely to suffer further if inflation gets worse. This is especially true if the Fed continues its rate hikes. The U.S. dollar tends to go up in value when rates are high.

While that’s great if you’re taking a European vacation, it’s not great if you have operations overseas since you’ll lose money when converting foreign currencies. Tech companies can have large overseas presences, so inflation and monetary policy affect them disproportionately.