Cisco Systems will eliminate as many as 5,500 jobs—about 7 percent of its global workforce—as the world’s largest networking-equipment company redirects spending from routers and switches toward software, security, cloud services and connected devices.

The restructuring announced Wednesday is one of Cisco’s largest in years and will begin in the first quarter of fiscal 2017. The company expects to reinvest substantially all of the savings in faster-growing businesses, meaning the cuts are designed less as a broad retreat than as a transfer of resources away from mature hardware operations.

Cisco disclosed the plan alongside quarterly results showing revenue of $12.6 billion and net income of $2.8 billion. The company’s earnings release said reported revenue declined 2 percent from a year earlier, though it rose 2 percent after excluding the set-top-box business Cisco has sold.

Hardware dominance meets a software-defined market

Cisco built its position by supplying the routers and switches that direct traffic through corporate and public networks. Those products remain central to the internet, but customers are increasingly using software to control networks and moving computing workloads into large cloud data centers. That change concentrates purchasing among a smaller number of powerful operators and reduces the appeal of proprietary hardware.

Traditional switching revenue fell 6 percent in the quarter, while routing revenue declined 6 percent. By contrast, security revenue rose 16 percent and collaboration increased 6 percent. Cisco’s annual securities filing shows the same divide across the full year: security and collaboration grew 13 percent and 9 percent, respectively, while several legacy categories faced pressure.

Chief Executive Chuck Robbins, who completed his first year in the job, said Cisco would continue investing in security, the Internet of Things, collaboration, next-generation data centers and cloud computing. Those priorities point toward products sold as subscriptions and services, which can provide more predictable recurring revenue than one-time equipment purchases.

5,500 positions become the cost of transition

The planned reduction affects a company with roughly 74,000 employees. Cisco has not detailed which offices or job functions will bear the cuts, but it said the actions would begin immediately. The company expects restructuring charges that include severance and other termination costs.

Reuters reported that the cuts amount to nearly 7 percent of the workforce and reflect sluggish demand in the core switching and routing business. The restructuring follows earlier reductions under former chief executive John Chambers and continues a pattern familiar across large technology companies trying to move from older product lines into cloud-based services.

For affected workers, the distinction between cost-cutting and reinvestment offers little comfort. The Washington Post’s account described the layoffs as a response to a technology upheaval reshaping the market for networking gear. Cisco must reduce skills and roles tied to slower-growing operations while recruiting engineers in cybersecurity, analytics and software.

Growth businesses cannot yet carry the whole company

Cisco’s results show why the transition is urgent and why it will be difficult. Security is growing rapidly, but it remains much smaller than switching and routing. Collaboration tools and data-center products also offer opportunities, yet declines in the largest hardware categories can outweigh strong percentage gains from newer businesses.

The company has used acquisitions to accelerate the shift. It completed the purchase of CloudLock, a cloud-security specialist, on August 1 and earlier acquired Jasper Technologies to manage connected devices. Cisco’s investor news archive records those transactions as part of a broader campaign to add subscription software and services rather than wait for internal development alone.

Security has become a particularly attractive market as companies confront sophisticated attacks and move sensitive information beyond their own data centers. Cisco’s 2016 Annual Security Report documented shrinking detection times but also warned that attackers were exploiting aging infrastructure and fragmented defenses. The company is betting that its position inside corporate networks can be turned into a larger security platform.

A profitable quarter with a cautious outlook

The layoffs arrive despite a 21 percent increase in quarterly net income, to $2.8 billion. That apparent contradiction reflects both improved profitability and concern about future growth. Cisco projected revenue for the current quarter to range from a 1 percent decline to a 1 percent increase after adjusting for the divested video business.

The Guardian noted that revenue slipped to $12.64 billion from $12.84 billion even as profit rose, illustrating the pressure to improve the company’s mix. Investors are likely to judge the restructuring not simply by expense reductions but by whether recurring and software-driven revenue becomes a larger share of the business.

The strategic logic is clear: network intelligence is migrating from specialized boxes into software, and computing is moving toward public and private clouds. Cisco still supplies much of the equipment beneath that transition, but ownership of the hardware layer no longer guarantees control of the higher-value services above it.

The 5,500 positions therefore represent more than a response to one weak quarter. They are the human cost of an attempt to remake a dominant hardware company while its core products remain profitable. Cisco must preserve the reliability and customer relationships that built its franchise, develop subscription businesses quickly enough to offset hardware pressure, and persuade customers that it can be as important in cloud security and software as it has been in physical networking. The restructuring gives Robbins resources to make that wager; the next several quarters will show whether growth follows the investment.