By Akash Sriram

(Reuters) – Cisco Systems said it would cut 5% of its global workforce, or more than 4,000 jobs, and lowered its annual revenue target as the company navigates a tough economy that has led to thousands of layoffs by tech firms this year.

Shares of the networking equipment maker fell more than 5% in extended trading on Wednesday, after Cisco cut the forecast to $51.5 billion to $52.5 billion from $53.8 billion to $55 billion, it projected earlier.

“We also continue to see weak demand with our telco and cable service provider customers,” CEO Charles Robbins said in a conference call.

Analysts expect demand for Cisco’s products to remain under pressure, as clients in the telecom industry restrict spending, prioritizing clearing their excess inventory of networking gear.

The networking hardware inventory pile-up should resolve in the second half of 2024 or early 2025, Joe Brunetto, analyst at Third Bridge said.

Meanwhile, Cisco is focusing on artificial intelligence and partnership with Nvidia to boost growth. CEO Robbins said Nvidia agreed to use Cisco’s ethernet with its own technology that is widely used in data centers and AI applications.

Cisco expects third-quarter revenue between $12.1 billion and $12.3 billion, below estimates of $13.1 billion, according to LSEG data.

The company, which has 85,000 employees, was planning layoffs and restructuring to focus on high-growth areas, three sources familiar with the matter told Reuters earlier this month.

It will incur a charge of $800 million on the layoffs before tax consisting of severance and other costs and expects to be recognize majority of the charges in the first half of fiscal 2025.

In the second quarter, Cisco recorded an adjusted profit of 87 cents per share and revenue of $12.79 billion, both above LSEG estimates.