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

The San Jose company announced the restructuring Wednesday with quarterly results showing the pressure behind the shift. Revenue for the period ended July 30 fell 2 percent to $12.6 billion when a divested set-top-box business is included, even as net income climbed 21 percent to $2.8 billion.

Cisco said the cuts will begin in the first quarter of its new fiscal year and that it expects to reinvest substantially all of the savings in faster-growing businesses. The company’s earnings announcement put the reduction at up to 5,500 positions worldwide and described it as a reshaping of skills rather than a simple contraction.

Hardware leadership meets a software shift

For decades, Cisco prospered by selling the switches and routers that direct traffic through corporate networks and the public internet. That equipment remains central to modern computing, but customers increasingly rent computing power and software from cloud providers instead of building and operating every layer themselves.

Software-defined networking also moves more control from specialized boxes into programmable systems. That does not eliminate demand for networking hardware, but it changes where profits accrue and how customers purchase technology. Cisco is responding by emphasizing recurring subscriptions, analytics, collaboration, the Internet of Things and cybersecurity.

Reuters reported that the restructuring will produce first-quarter charges of up to $400 million. The company said the affected roles will be concentrated in areas where growth has slowed, while hiring and investment continue in businesses it considers strategic.

The numbers reveal two Ciscos

Cisco’s results show a mature core and a collection of expanding newer businesses. Switching revenue declined in the quarter, while routing was also weak. By contrast, security sales rose strongly, collaboration grew and deferred revenue associated with subscriptions continued to increase.

The company’s annual securities filing shows that security revenue grew 13 percent in fiscal 2016 and collaboration revenue increased 9 percent. It also details the competitive pressure from lower-cost equipment makers, cloud architectures and customers seeking open, programmable networks.

Overall fiscal-year revenue was $49.2 billion, or $48.7 billion after normalizing for the sold consumer-premises-equipment business, with adjusted growth of 3 percent. For the new quarter, Cisco forecast revenue growth between negative 1 percent and positive 1 percent. That outlook suggests the company cannot rely on its established product lines to deliver the expansion investors expect.

The Washington Post reported that the reduction will affect nearly 7 percent of approximately 74,000 employees. The scale makes it one of the most significant workforce actions under Chief Executive Chuck Robbins, who took the top job last year.

Acquisitions build the next portfolio

Cisco has been using acquisitions to add the capabilities its restructuring is meant to favor. It bought Jasper Technologies, a platform for managing connected devices, and completed the purchase of CloudLock, a cloud-security company, this month. Its investor archive lists the Jasper and CloudLock transactions among a series of moves into subscription-based and software-intensive markets.

Those purchases complement internal products in threat detection, identity, collaboration and data-center management. Cisco’s challenge is to integrate them into a coherent platform and sell them through a global organization historically optimized for large hardware transactions.

Security offers a particularly clear growth case. Cisco’s 2016 Annual Security Report describes increasingly sophisticated ransomware, malicious advertising and attacks that move across interconnected systems. Customers confronting those threats may value continuous monitoring and recurring updates more than one-time equipment purchases.

Reinvestment does not soften the disruption

Cisco’s insistence that savings will be reinvested distinguishes the plan from a conventional austerity program. It is still a major disruption for employees. The cuts follow recurring rounds of restructuring across large technology companies as cloud computing alters demand for servers, storage and networking equipment.

The Guardian noted that Cisco’s profit rose even while revenue slipped, highlighting that the layoffs are driven less by immediate financial distress than by a strategic judgment about future markets. The company is profitable, cash-rich and able to invest; its concern is that the composition of its workforce and products must change faster.

That makes execution more complicated. Cisco must reduce roles tied to slower businesses without weakening support for products that still generate most of its cash. It must hire software and security specialists in a competitive labor market. And it must convince customers that a vendor associated with proprietary networking boxes can deliver flexible cloud-era services.

Robbins is presenting the restructuring as an investment decision: resources will move toward security, the Internet of Things, collaboration, next-generation data centers and cloud computing. The test will be whether those categories grow quickly enough to offset pressure in switching and routing—and whether recurring software revenue can make Cisco’s results more predictable.

The 5,500 positions are therefore more than a cost line. They mark an attempt to redraw the boundary between the Cisco that built the internet’s physical backbone and the company it wants to become. Profits from the former are financing the latter, but Wednesday’s announcement shows that the transition now carries a substantial human cost.