Q2 2024 Cisco Systems Inc Earnings Call

February 14, 2024

Welcome to Cisco's second quarter fiscal year, 'twenty 'twenty, four and financial results conference call at the request of Cisco Today's conference is being recorded if you have any objections. You may disconnect now I would like to introduce Sami Badri head of Investor Relations. Sir you may begin.

Unknown Attendee: Welcome to Cisco's second quarter fiscal year 2024 financial results conference call. At the request of Cisco, today's conference is being recorded. If you have any objections, you may disconnect. Now, I would like to introduce Sami Badri, Head of Investor Relations. Sir, you may begin.

Sami Badri: Welcome, everyone, to Cisco's second quarter fiscal year 2024 conference call. This is Sami Badri, Cisco's Head of Investor Relations, and I'm joined by Chuck Robbins, our Chairman and CEO, and Scott Herren, our CFO. By now, you should have seen our earnings press release. A corresponding webcast with slides, including supplementary information, will be available on our website in the Investor Relations section following the call. Income Statements, Full GAAP to Non-GAAP Reconciliation Information, Balance Sheets, Cash Flow Statements, and other financial information can also be found in the Financial Information section of our Investor Relations website.

Welcome everyone to Cisco's second quarter fiscal year 'twenty for a conference call. This is Sami Badri Cisco's head of Investor Relations and I'm joined by Chuck Robbins, Our chairman and CEO and Scott Herren our CFO.

Sami Badri: By now you should have seen our earnings press release, a corresponding webcast with slides, including supplemental information will be available on our website in the Investor Relations section following the call.

Sami Badri: Income statements full GAAP to non-GAAP reconciliation information balance sheets cash flow statements and other financial information can also be found in the financial information section of our Investor Relations website. Throughout this conference call, we'll be referencing both GAAP and non-GAAP financial results and will discuss product results in terms of revenue and geographic and customer results.

Sami Badri: Throughout this conference call, we will be referencing both GAAP and Non-GAAP financial results and will discuss product results in terms of revenue, and geographic and customer results in terms of product orders, unless stated otherwise. All comparisons are made throughout this call and will be on a year-over-year basis. The matters we'll be discussing today include forward-looking statements, including the guidance we will be providing for the third quarter and full year of fiscal 2024. They are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. [inaudible] Thanks, Sami.

Sami Badri: In terms of product orders unless stated otherwise.

All comparisons are made throughout this call will be on a year over year basis.

Sami Badri: Matters, we'll be discussing today include forward looking statements, including the guidance, we will be providing for the third quarter and full year of fiscal 2024.

They are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC specifically the most recent report on forms 10-K, and 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward looking statements with respect to guidance. Please feel free to see the slides and press release that accompany this.

Sami Badri: Call report for further details.

Sami Badri: I will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure I will now turn it over to Chuck.

Charles H. Robbins: Thanks, Amy and thank you all for joining US today, we delivered a solid Q2 performance with revenue coming in at the high end of our guidance range strong operating leverage across our business drove our margins, which exceeded the high end of our expectations and allowed us to deliver better than anticipated earnings per share.

Unknown Executive: And thank you all for joining us today. We delivered a solid Q2 performance with revenue coming in at the high end of our guidance range. The strong operating leverage across our business drove our margins, which exceeded the high end of our expectations and allowed us to deliver better than anticipated earnings per share. In Q2, we once again returned a total of $2.8 billion in value through dividends and share repurchases.

Charles H. Robbins: In Q2, we once again returned a total of $2 8 billion in value through dividends and share repurchases. We also announced today another increase to cisco's dividend payout rate reaffirming our ongoing commitment to returning significant value to our shareholders through consistent capital returns.

Charles H. Robbins: We also announced today another increase to Cisco's dividend payout rate, reaffirming our ongoing commitment to returning significant value to our shareholders through consistent capital returns. Overall, our Q2 results continue to advance our strategic business transformation around driving higher levels of software subscriptions and annualized recurring revenue, or ARR, both of which showed performance gains in the quarter. Our pending acquisition of Splunk also further supports our transformation strategy by fueling stronger growth, expanding our portfolio of software-based solutions, and generating higher levels of ARR, with roughly $4 billion in additional ARR expected upon closing, and will make us one of the largest software companies in the world. Before turning to our performance in the quarter, I'd like to start by commenting on the demand environment. First, in terms of the macro environment, we are seeing a greater degree of caution and scrutiny of deals given the high level of uncertainty.

Overall, our Q2 results continued to advance our strategic business transformation around driving higher levels of software subscriptions and annualized recurring revenue or <unk>, both of which showed performance gains in the quarter.

Charles H. Robbins: Our pending acquisition of Splunk also further supports our transformation strategy, while fueling stronger growth expanding our portfolio of software based solutions and generating higher levels of a R. R. With roughly 4 billion in additional <unk> expected upon closing and will make us one of the largest software companies in the world.

Charles H. Robbins: Before turning to our performance in the quarter I'd like to start by commenting on the demand environment.

Charles H. Robbins: First in terms of the macro environment, we are seeing a greater degree of caution and scrutiny of deals given the high level of uncertainty as.

Charles H. Robbins: As we're hearing this from our customers, it's leading us to be more cautious with our forecast and expectations. Second,

Charles H. Robbins: As we are hearing this from our customers.

Charles H. Robbins: Leading us to be more cautious with our forecast and expectations second.

Charles H. Robbins: As we discussed last quarter and subsequently saw in other technology provider results, customers have been taking time since the start of our fiscal 2024 to deploy the elevated levels of products shipped to them in recent quarters, and this is taking longer than our initial expectations. Third, we also continue to see weak demand with our telco and cable service provider customers. This industry has seen significant pressure, and they are adjusting deployment phasing, which is weighing on our business outlook. Given these factors, we are adjusting our expenses and investments to reflect the current. That said, for the product categories in which we can measure customer inventory absorption through connections to the cloud, we are seeing steady progress. However, based on conversations with customers, we still believe we are one to two quarters away from full implementation of their inventory, which, as I mentioned, is longer than we expected. We continue to track Meraki activations, which are moving slightly faster in wireless and slightly slower in switching.

Charles H. Robbins: As we discussed last quarter and subsequently saw and other technology provider results customers have been taking time since the start of our fiscal 2024 to deploy the elevated levels of products shipped to them in recent quarters and this is taking longer than our initial expectations.

Charles H. Robbins: Third we also continue to see weak demand with our telco and cable service provider customers. This industry has seen significant pressure and they are adjusting deployment phasing, which is weighing on our business outlook.

Charles H. Robbins: Given these factors we are adjusting our expenses and investments to reflect the current environment.

Charles H. Robbins: That said for the product categories in which we can measure customer inventory absorption through connections to the cloud we are seeing steady progress. However, based on conversations with customers. We still believe we are one to two quarters away from full implementation of their inventory, which as I mentioned is longer than we expected.

Charles H. Robbins: We continue to track Meraki, Activations, which are moving slightly faster in wireless and slightly slower in switching.

Charles H. Robbins: Using our Meraki business as a proxy for our wider enterprise networking portfolio, we expect the current implementation of shipped products to be broadly complete by the end of fiscal 2024. Looking at our wireless business as an example, we are encouraged by the number of orders of 1 million or more, which increased approximately 50% sequentially in Q2. This indicates that many wireless customers have finished absorbing what we've shipped to them and are preparing for larger deployments in the coming months.

Charles H. Robbins: Using our Meraki business as a proxy for our wider enterprise networking portfolio. We expect the current implementation of shipped products to be broadly complete by the end of fiscal 2024.

Charles H. Robbins: Looking at our wireless business as an example, we are encouraged by the number of orders of 1 million or more which increased approximately 50% sequentially in Q2.

This indicates that many wireless customers have finished absorbing what we've shipped to them and are preparing for larger deployments in the coming months.

Charles H. Robbins: Our team is also partnering closely with customers to assist with this heightened focus on deployments of Cisco equipment on hand.

Charles H. Robbins: Our team is also partnering closely with customers to assist with this heightened focus on deployments of Cisco equipment on hand, contributing to our services revenue increase year-over-year. It's also worth noting that non-hardware-centric revenue in areas such as security and collaboration increased, and our observability offerings grew double digits year-over-year. (Inaudible) Now moving on to our performance in Q2. As I mentioned earlier, our performance in the quarter was broadly in line with, or better than, our Q2 expectations. Given the trust our customers place in us and the criticality of our technologies to the outcomes our customers are seeking, I am confident about the foundational strength of our portfolio and our future growth opportunities. Through our innovation, we deliver and enable our customers to deploy next-generation applications in a highly secure manner.

Charles H. Robbins: Contributing to our services revenue increase year over year.

Charles H. Robbins: It's also worth noting that non hardware centric revenue in areas, such as security and collaboration increased and our Absorbability offerings grew double digits year over year.

Charles H. Robbins: Finally, despite the near term challenges our win rates are stable and on a rolling four quarter basis, our market share remains steady in three of our four largest markets.

Charles H. Robbins: Now moving onto our performance in Q2.

Charles H. Robbins: As I mentioned earlier, our performance in the quarter was broadly in line with or better than our Q2 expectations.

The trust our customers, placing us in the criticality of our technologies to the outcomes. Our customers are seeking I am confident about the foundational strength of our portfolio and our future growth opportunities.

With our innovation, we deliver and enable our customers to deploy next generation applications and a highly secure manner.

Charles H. Robbins: As part of this, we help facilitate their growth through our products and services so that when our customers adopt new technologies, we grow alongside them. We continue to accelerate our innovation across high-growth areas. Last week, at Cisco Live EMEA, we announced new capabilities in networking, furthering our vision for the Cisco Networking Cloud.

Charles H. Robbins: As part of this we help facilitate their growth through our products and services, so that when our customers adopt new technologies, we grow alongside them.

Charles H. Robbins: We continue to accelerate our innovation across high growth areas last week at Cisco Live EMEA, we announced new capabilities in networking furthering our vision for the Cisco networking cloud, we also announced several new capabilities across our security collaboration and observe ability portfolios leveraging AI throughout.

Charles H. Robbins: We also announced several new capabilities across our security, collaboration, and observability portfolios, leveraging AI throughout. We also continue to capitalize on the multi-billion-dollar AI infrastructure opportunity. This quarter, we announced the next phase in our partnership with NVIDIA to offer enterprises simplified, cloud-based, and on-premise AI infrastructure that includes both networking hardware and software to support advanced AI workloads.

Charles H. Robbins: We also continue to capitalize on the multibillion dollar AI infrastructure opportunity this quarter, we announced the next phase in our partnership with Nvidia to offer enterprises simplified cloud based and on Prem AI infrastructure.

This includes both networking hardware and software to support advanced AI workloads.

Charles H. Robbins: We are clear beneficiaries of AI adoption and this partnership further demonstrates the central role we play in AI and the overall technology ecosystem.

Charles H. Robbins: We are clear beneficiaries of AI adoption, and this partnership further demonstrates the central role we play in AI and the overall technology ecosystem. Our combined solution will be sold through our extensive global channel with professional services and support from key partners who are committed to helping businesses deploy their GPU clusters via Ethernet infrastructure. In web scale, we continue to see momentum with three of the top four customers deploying our hyperscale Ethernet AI fabric, leveraging Cisco validated designs for AI infrastructure. While there is tremendous opportunity ahead, we are still in the early stages of AI workload adoption. Insecurity

Charles H. Robbins: Our combined solution will be sold through our extensive global channel with professional services and support from key partners, who are committed to helping businesses deploy their GPU clusters via Ethernet infrastructure.

Charles H. Robbins: And web scale, we continue to see momentum with three of the top four customers deploying our hyperscale Ethernet AI fabric.

Charles H. Robbins: Leveraging Cisco validated designs for AI infrastructure.

Charles H. Robbins: While there is tremendous opportunity ahead, we are still in the early stages of adoption of AI workloads.

In security.

Charles H. Robbins: We continue to execute against our product roadmap to deliver the industry's most comprehensive unified platform with end to end solutions.

Charles H. Robbins: This quarter, we introduced Cisco identity intelligence and analytics layer that pulls data from identity infrastructure and performs behavior based assessments to help protect against identity based attacks, which are at the forefront of cyber threats today.

Charles H. Robbins: We continue to execute against our product roadmap to deliver the industry's most comprehensive unified platform with end-to-end solutions. This quarter, we introduce Cisco Identity Intelligence, an analytics layer that pulls data from identity infrastructure and performs behavior-based assessments to help protect against identity-based attacks, which are at the forefront of cyber threats today. AI is also becoming more pervasive across the Cisco security cloud. For example, our new AI assistant in secure access lets customers create security access policies using natural language prompts, reducing errors and speeding up policy administration by 70%. Our new security solutions like XDR and Secure Access are ramping quickly after being launched this fall, with now over 230 Cisco XDR customers. Over the next six months, you can expect more meaningful announcements across the portfolio through our accelerated organic innovation and inorganic investments.

AI is also becoming more pervasive across the Cisco security Cloud for example, our new AI assistant and secure access lets customers create security access policies using natural language prompts reducing errors and speeding up policy administration by 70%.

Charles H. Robbins: Our new security solutions like Xdr and secure access are ramping quickly after being launched this fall with now over 230, Cisco Xdr customers.

Charles H. Robbins: Over the next six months, you can expect more meaningful announcements across the portfolio through our accelerated organic innovation and inorganic investments.

Charles H. Robbins: In addition, we have now extended our AI powered <unk> thousand eyes into Cisco secure access joining past integrations with App dynamics, Webex catalyst and Meraki platforms.

Charles H. Robbins: <unk> allows our customers to understand the digital experience of users applications and things through billions of daily measurements of the Internet and public SaaS as well as thousands of enterprise customers, creating best in class digital experiences for users.

Charles H. Robbins: And observe ability, we introduced Cisco digital experience monitoring application, providing deep insights into the performance of browser and mobile applications and efficient resolution of session level issues.

Charles H. Robbins: In addition, we have now extended our AI-powered Thousand Eyes into Cisco Secure Access, joining past integrations with AppDynamics, Webex, Catalyst, and Meraki platforms. Thousand Eyes allows our customers to understand the digital experience of users, applications, and things through billions of daily measurements of the internet and public SaaS, as well as thousands of enterprise customers creating best-in-class digital experiences for users. In observability, we introduce the Cisco digital experience monitoring application, providing deep insights into the performance of browser and mobile applications and efficient resolution of session-level issues.

Charles H. Robbins: Our continued generative AI innovations build upon our existing platform capabilities further enabling operations teams to focus on what matters, most minimizing tool sprawl improve.

Charles H. Robbins: The improving overall performance and delivering highly secure digital experiences.

Charles H. Robbins: Going back to the pending Splunk acquisition. The combination of Splunk is complementary capabilities with ours and AI security and observe ability will create an end to end data platform to enhance our customers' digital resiliency.

Charles H. Robbins: We are excited that together, we will bring trusted innovation leadership and outstanding go to market engine and a world class culture that will help our customers achieve their technology outcomes with innovative products and solutions.

Charles H. Robbins: I would also like to provide a brief update on timing, while the closing of the acquisition of Splunk remains subject to regulatory approvals and other customary closing conditions given the positive progress to date on the required regulatory approvals. We now expect to close the transaction late in the first quarter or early in the second quarter.

Charles H. Robbins: Our continued generative AI innovations build upon our existing platform capabilities, further enabling operations teams to focus on what matters most. [inaudible] Improving overall performance and delivering highly secure digital experiences. Going back to the pending Splunk acquisition, the combination of Splunk's complementary capabilities with ours in AI, security, and observability will create an end-to-end data platform to enhance our customers' digital resiliency.

Charles H. Robbins: Of calendar year, 2024, which is in our fiscal third quarter.

Speaker Change: Before I turn it over to Scott, Let me summarize three key takeaways.

Speaker Change: First we have reset our expectations for the second half of the year, given the cautious macro environment, our customers absorbing high levels of inventory and ongoing weakness in service provider.

Charles H. Robbins: We are excited that together we will bring trusted innovation leadership, an outstanding go-to-market engine, and a world-class culture that will help our customers achieve their technology outcomes with innovative products and solutions. I would also like to provide a brief update on timing, while the closing of the acquisition of Splunk remains subject to regulatory approvals and other customary closing conditions. Given the positive progress to date on the required regulatory approvals, we now expect to close the transaction late in the first quarter or early in the second quarter of calendar year 2024, which is in our fiscal third quarter. Before I turn it over to Scott, let me summarize three key takeaways. First, we have reset our expectations for the second half of the year, given the cautious macro environment, our customers absorbing high levels of inventory, and ongoing weakness in service providers. Second, you can count on us to take a disciplined approach regardless of the environment.

Speaker Change: Second you can count on us to take a disciplined approach regardless of the environment.

Richard Scott Herren: We remain committed to operating leverage capital allocation and expense management.

Lastly, our portfolio continues to get stronger and stronger every day, while we have work in front of us and despite the current environment, we remain confident in our long term strategy.

Richard Scott Herren: We are relentlessly focused on our commitment to driving long term value for our shareholders and industry, leading innovation for our customers.

Richard Scott Herren: I'll now turn it over to Scott to provide more detail on the quarter and our outlook. Thanks Chuck.

Our Q2 results reflect solid execution again with strong margins and increasing operating leverage.

Richard Scott Herren: For the quarter total revenue was at the high end of our guidance range of $12 8 billion down 6% year over year.

Richard Scott Herren: non-GAAP net income was $3 5 billion down 3% and non-GAAP earnings per share was above the high end of our guidance range at 87 down 1%.

Richard Scott Herren: Looking at our Q2 revenue in more detail.

Richard Scott Herren: Total product revenue was $9 2 billion down 9% and service revenue was $3 6 billion up 4%.

Richard Scott Herren: Networking, our largest product category was down 12%, we saw declines across switching wireless and routed optical networking driven primarily by weakness in the enterprise and service provider and cloud markets.

Charles H. Robbins: We remain committed to operating leverage, capital allocation, and expense management. Lastly, our portfolio continues to get stronger and stronger every day. While we have work in front of us, and despite the current environment, we remain confident in our long-term strategy. We are relentlessly focused on our commitment to driving long-term value for our shareholders and industry-leading innovation for our customers. (inaudible) I'll now turn it over to Scott to provide more detail on the quarter and our outlook. Thanks, Chuck.

Richard Scott Herren: Security was up 3% with our zero trust offering growing double digits.

Richard Scott Herren: Collaboration was up 3% driven by growth in collaboration devices, and calling partially offset by a decline in meetings.

Richard Scott Herren: Observe ability was up 16% driven by growth across the portfolio with continued strength in <unk> network services.

Richard Scott Herren: As Chuck mentioned <unk> helps monitor and assure digital experience everywhere on premise internet and the cloud.

Richard Scott Herren: We continue to make progress on our transformation to more recurring revenue based offerings. We saw strong performance in our IRR of $24 7 billion, which increased 6% with product IRR growth of 9%.

Richard Scott Herren: Our Q2 results reflect solid execution again, with strong margins and increasing operating leverage. For the quarter, total revenue was at the high end of our guidance range at $12.8 billion, down 6% year-over-year. Non-GAAP net income was $3.5 billion, down 3%.

Richard Scott Herren: Total software revenue was flat at $4 2 billion with software subscription revenue up 5%.

Richard Scott Herren: 88% of our software revenue was subscription based.

Richard Scott Herren: Total subscription revenue increased 6% to $6 4 billion, which now represents 50% of Cisco's total revenue an increase of six percentage points over last year.

Richard Scott Herren: And non-GAAP earnings per share was above the high end of our guidance range at $0.87, down 1%. Looking at our Q2 revenue in more detail. Total product revenue was $9.2 billion, down 9%, and service revenue was $3.6 billion, up 4%. Networking, our largest product category, was down 12%. We saw declines across switching, wireless, and routed optical networking, driven primarily by weakness in the enterprise and service provider and cloud market. However, security was up 3%, with our Zero Trust offering growing double digits. Collaboration was up 3%, driven by growth in collaboration devices and calling, partially offset by a decline in meetings. Observability was up 16%, driven by growth across the portfolio with continued strength in ThousandEyes Network Services. As Chuck mentioned, Thousand Eyes helps monitor and assure digital experiences everywhere, on premises, the internet, and the cloud.

Richard Scott Herren: <unk> was $35 7 billion up 12% year over year.

Richard Scott Herren: Product and service <unk>, both increased 12%.

Richard Scott Herren: Total short term RPI was $17 9 billion up 6% Q.

Richard Scott Herren: Q2 product orders declined 12% a significant improvement from Q1 as customers continue to work down product shipments from prior quarters.

Looking at our geographic segments year over year, the Americas was down 10% EMEA down 8% in AP JC was down 27% and.

Richard Scott Herren: And our customer markets service provider and cloud was down 40% enterprise was down 6% and public sector was down 5%.

Richard Scott Herren: Backlog at the end of Q2 has now returned to normal levels.

Richard Scott Herren: Total non-GAAP gross margin came in at 66, 7% up 280 basis points year over year and above the high end of our guidance range.

Richard Scott Herren: Product gross margin was 65, 2% up 310 basis points.

Richard Scott Herren: The improvement was driven primarily by lower freight and component costs and favorable product mix, partially offset by negative impact on pricing.

Richard Scott Herren: Service gross margin was 75% up 140 basis points.

Richard Scott Herren: non-GAAP operating margin came in at 33% up 50 basis points and exceeding the high end of our guidance range.

Richard Scott Herren: <unk> non-GAAP gross margin and continued cost management drove the leverage.

Richard Scott Herren: We continue to make progress on our transformation to more recurring revenue-based offerings. We saw strong performance in our ARR of $24.7 billion, which increased 6%, with product ARR growth of 9%. Total software revenue is flat at $4.2 billion, with software subscription revenue up 5%.

Richard Scott Herren: Further we are realigning our investments and expenses to reflect the current environment to help maximize long term value for our shareholders as.

Richard Scott Herren: As part of our announced restructuring plan, we expect to impact approximately 5% of our global workforce with estimated pre tax charges of approximately $800 million.

Richard Scott Herren: Shifting to the balance sheet. We ended Q2 with total cash cash equivalents and investments of $25 7 billion.

Richard Scott Herren: Consistent with our expectations operating cash flow was $800 million driven in large part by the timing of federal tax payments and the higher annual payment of the TC JA transition tax.

Richard Scott Herren: 88% of our software revenue was subscription-based. Total Subscription Revenue increased 6% to $6.4 billion, which now represents 50% of Cisco's total revenue, an increase of 6 percentage points over last year. RPO is $35.7 billion, up 12% year over year. Product and Service RPO both increased 12%, and total short-term RPO is $17.9 billion, up 6%. Q2 product orders declined 12%, a significant improvement from Q1 as customers continue to work down product shipments from prior quarters.

Richard Scott Herren: This quarter, we returned $2 8 billion to shareholders comprised of $1 6 billion for our quarterly cash dividend and $1 3 billion of share repurchases.

Year to date, we have returned $5 7 billion in value to shareholders. We plan to continue our share repurchases at the current quarterly level throughout fiscal 2024.

Increasing shareholder returns through greater operating leverage maintaining a higher level of annual share repurchases and growing our dividend is consistent with our capital allocation strategy.

Richard Scott Herren: Given the confidence we have in our business today, we announced we are raising our dividend by one penny to 40 per quarter. This.

Richard Scott Herren: Looking at our geographic segments year over year, the Americas was down 10%, EMEA was down 8%, and APJC was down 27%. In our customer markets, service provider and cloud were down 40%, enterprise was down 6%, and public sector was down 5%. Backlog at the end of Q2 has now returned to normal levels. Total non-GAAP gross margin came in at 66.7%, up 280 basis points year over year and above the high end of our guidance range. Product Gross Margin was 65.2%, up 310 basis points. The improvement was driven primarily by lower freight and component costs and favorable product mix, partially offset by a negative impact on pricing.

Richard Scott Herren: To summarize we executed well with continued strong margins and increased operating leverage as we help our customers complete record deployments in implementations.

Richard Scott Herren: We continued to progress our business model shift to more recurring revenue we.

Richard Scott Herren: We are strategically investing in innovation to capitalize on our growth opportunities and are committed to deliver it to delivering long term shareholder value.

Richard Scott Herren: With regard to our proposed acquisition of Splunk, we continue to work through regulatory approvals and closing conditions and as Chuck mentioned, we are optimistic that it will close ahead of what we had originally anticipated.

Richard Scott Herren: We have not included any impact from the Splunk acquisition in our forward looking guidance.

Richard Scott Herren: Turning to our guidance as previously mentioned, we have reset our expectations for the second half of the year to account for the caution around macro uncertainty. The continued absorption by our customers of record levels of product shipments they received from us and the weakness of our service provider market.

Richard Scott Herren: Service Gross Margin was 70.5%, up 140 basis points, up 140 basis points. [inaudible] non-gap operating margin came in at 33%, up 50 basis points and exceeding the high end of our guidance range. Strong Non-Gap Gross Margin and Continued Cost Management drove the leverage. Furthermore, we are realigning our investments and expenses to reflect the current environment to help maximize long-term value for our shareholders. As part of our announced restructuring plan, we expect to impact approximately 5% of our global workforce with estimated pre-tax charges of approximately $800 million. Shifting to the balance sheet, we ended Q2 with total cash, cash equivalents, and investments of $25.7 billion. Consistent with our expectations, operating cash flow was $800 million, driven in large part by the timing of federal tax payments and the higher annual payment of the TCJA transition tax.

Richard Scott Herren: For Q3, our guidance is as follows we expect revenue to be in the range of $12 1 billion to $12 3 billion.

Richard Scott Herren: We anticipate the non-GAAP gross margin to be in the range of <unk>, 66% to 67%.

Richard Scott Herren: non-GAAP operating margin is expected to be in the range of $33 five to 34, 5%.

Richard Scott Herren: non-GAAP earnings per share is expected to range from 84 to 86.

Richard Scott Herren: For fiscal year 'twenty four our guidance is as follows we expect revenue to be in the range of $51 5 billion to $52 5 billion.

Richard Scott Herren: non-GAAP earnings per share guidance is expected to range from $3 68 to.

Richard Scott Herren: The $3 74.

Richard Scott Herren: And both our Q3 and full year guidance, we're assuming a non-GAAP effective tax rate of 19%.

Richard Scott Herren: Sami, let's now move into the Q&A.

Sami Badri: Thank you Scott before.

Sami Badri: Before we start the Q&A portion of the call I would like to remind analysts to ask one question and a single follow up question operator can we move to the first analysts in the queue.

Speaker Change: Thank you Sir.

Evercore: <unk> <unk> with Evercore you May go ahead Sir.

Evercore: Yes.

Evercore: Good afternoon, I'll ask both my questions upfront.

Evercore: Jeff when I think about the lower revenue guide for the full year by about 500 basis points versus 90 days ago could you just put that how much of that do you think the.

Richard Scott Herren: This quarter, we returned $2.8 billion to shareholders, comprised of $1.6 billion for our quarterly cash dividend and $1.3 billion of share repurchase. Year-to-date, we have returned $5.7 billion in value to shareholders, and we plan to continue our share repurchases at the current quarterly level throughout fiscal 2024. Increasing shareholder returns for greater operating leverage, maintaining a higher level of annual share repurchases, and growing our dividend is consistent with our capital allocation strategy. Given the confidence we have in our business today, we announced we're raising our dividend by one penny to 40 cents per quarter.

Evercore: The digestion getting extended workdays, the macro versus the telco weakness and then how do you sort of think about getting back to a positive revenue cadence organically and then as a follow up I'd love to just understand.

Evercore: And media announcement equal theres a bit of a perception that it's more about server is less about networking I'd love for you to just flush that out thank you.

Speaker Change: Thank you very much.

Speaker Change: So obviously with the lower guide we talked about the.

Speaker Change: The feeling that there's some macro uncertainty we talked to our teams in preparation for this and they obviously submitted their forecast and what we really saw was.

Speaker Change:

Speaker Change: What they previously told US 90 days ago relative to the second half versus what they told US a couple of weeks ago had changed materially which means customers are pushing things out and put a little more scrutiny on them. So that's the difference that we've seen.

Richard Scott Herren: This dividend increase demonstrates our commitment to returning a minimum of 50% of free cash flow annually to our shareholders and our confidence in the strength of our ongoing cash flows. To summarize, we executed well with continued strong margins and increased operating leverage as we helped our customers complete record deployments and implementations. We continue to progress our business model shift to more recurring revenue. We are strategically investing in innovation to capitalize on our growth opportunities and are committed to delivering long-term shareholder value. With regard to our proposed acquisition of Splunk, we continue to work through regulatory approvals and closing conditions, and as Chuck mentioned, we're optimistic that it'll close ahead of what we had originally anticipated. We have not included any impact from the Splunk acquisition in our forward-looking guidance.

Speaker Change: As far as trying to breakdown.

Speaker Change: What percentage comes from each of those three including the digestion issue as well as the the telco in Fps piece, I think it's pretty difficult to do honestly.

Speaker Change: However, I will say that.

Speaker Change: We think that the consumption of the elevated inventory levels should be we should be through that by the end of our fiscal year.

Speaker Change: We think that the.

Speaker Change: The SP telcos, the SP telco and cable side of it.

Speaker Change: We're hopeful that in the 25, they will begin investing again, we originally had anticipated that they would begin to invest in the second half of this year and we no longer believe that to be true.

Speaker Change: And I think that so I think the the.

Speaker Change: The consumption issue and the SP thing.

Richard Scott Herren: Turning to our guidance, as previously mentioned, we have reset our expectations for the second half of the year to account for the caution around macro uncertainty, the continued absorption by our customers of record levels of product shipments they've received from us, and the weakness of our service provider market. For Q3, our guidance is as follows: we expect revenue to be in the range of $12.1 billion to $12.3 billion. We anticipate the non-GAAP gross margin to be in the range of 66 to 67 percent. The Non-GAAP Operating Margin is expected to be in the range of 33.5 to 34.5 percent. Non-GAAP earnings per share are expected to range from 84 cents to 86 cents.

Are the consumption issue is temporary through the end of the year. The macro thing is one that we're going to have to wait and see and the SP telco probably similarly.

Speaker Change: All of these things, let us obviously to reset the second half of the year.

Speaker Change: On the Nvidia partnership.

It is.

Speaker Change: It is definitely Ethernet I was in the meeting when we first talked.

<unk> talked about this with Janssen and.

Speaker Change: He agreed that we would include our Ethernet technology with their Gpus and creating the stack that will also be servers as well and there'll be multiple versions of this over time, so but it will include our Ethernet technology, when they're connecting multiple clusters.

Speaker Change: Thank you Amit and Michelle can we have the next analyst. Thank.

Speaker Change: Thank you meta Marshall with Morgan Stanley You May go ahead.

Marshall: Great. Thanks.

Marshall: Maybe you have mentioned service provider, but I guess.

Marshall: Just getting a sense of whether youre seeing more weakness on data center edge or if it comes to kind of the <unk>.

Richard Scott Herren: For fiscal year 24, our guidance is as follows. We expect revenue to be in the range of $51.5 billion to $52.5 billion. Non-GAAP earnings per share guidance is expected to range from $3.68 to $3.74.

Marshall: Investment priorities.

Meta A. Marshall: You had noted that enterprises had a couple of quarters ago or any one of those areas still getting prioritized significantly.

Meta A. Marshall: <unk> is not getting prioritize significantly and then just maybe as a second question.

Sami Badri: In both our Q3 and full-year guidance, we're assuming a non-GAAP effective tax rate of 19%. Sami, now we're going to move into the Q&A. Thank you, Scott. Before we start the Q&A portion of the call, I would like to remind analysts to ask one question and a single follow-up question. Operator, can we move to the first analyst in the queue? Thank you, sir. Amit Daryanani with Evercore.

Meta A. Marshall: How are you seeing enterprises think about AI and.

Meta A. Marshall: And think about where the budgets for AI are coming from.

Speaker Change: Just any commentary would be helpful. There. Thanks.

Speaker Change: Thanks, Peter So I would say that what we do see customers investing in is clearly cyber security.

Speaker Change: We see.

Peter: Observe ability as you saw the 16% growth rate, we even saw collaboration positive.

Amit Jawaharlaz Daryanani: You may go ahead, sir. Good afternoon. I'll ask both my questions up front. You know, Chuck, when I think about the higher revenue guide for the full year, about 500 basis points, which was 90 days ago, can you just tell us how much of that do you think is the digestion getting extended versus the macro versus the telco weakness? And then, as a follow-up, I'd love to just understand the Nvidia announcement you guys had. There's a bit of a perception that it's more about servers, less about networking. I would love for you to just flush that out and tell me what that means for Cisco. Thank you. Amit, thank you very much.

Speaker Change: This quarter, which was a good sign.

Speaker Change: They are at various phases of still dealing with this hybrid work situation, we had a very strong quarter with our devices are video device businesses.

Speaker Change: We see customers investing in their customer experience through technologies like contact center.

Speaker Change: And.

So we see a lot of that we see customers continue to invest in their application re architecture, which leads to.

Speaker Change: Both observe ability opportunities as well as the re architecture of their networks to deal with the traffic flows that we've been talking about for a couple of years I think the real issue right. Now is that we shipped so much networking in our core business that that's where the challenges that they are just trying to get to all of that implemented right now.

Charles H. Robbins: So, obviously, with the lower guide, we talked about the feeling that there's some macro uncertainty. We talked to our teams in preparation for this, and they obviously submitted their forecasts, and what we really saw was that what they previously told us 90 days ago relative to the second half versus what they told us a couple weeks ago had changed materially, which means customers are pushing things out and putting a little more scrutiny on them. So that's the difference that we've seen. As far as trying to break it down, what percentage comes from each of those three, including the digestion issue, as well as the telco and SP piece? I think it's pretty difficult to do, honestly.

Speaker Change: As it relates to the enterprise and how they are thinking about AI, what I would tell you is it.

Speaker Change: Over the last 90 days, we began to see the the.

Speaker Change: The pipeline for AI use cases in the enterprise began to emerge and Theres a heavy.

Speaker Change: Heavy work going on in financial services I would say it's early.

Speaker Change: And what they're trying to think through but we are seeing opportunities arise and.

Speaker Change: And I think there have been some comments.

Speaker Change: Not not enough for me to translate this to a massive trend, but there were some comments from some of our field teams that they see customers.

Charles H. Robbins: However, I will say that we think that the consumption of the elevated inventory level should be – we should be through that by the end of our fiscal year. We think that the SP Telco and cable side of it, we're hopeful that in 2025 they will begin investing again. We originally anticipated that they would begin to invest in the second half of this year, and we no longer believe that to be true. And I think that the consumption issue and the SP thing, or the consumption issue is temporary through the end of the year. The macro thing is one that we're going to have to wait and see, and the SP telco, probably, similarly. And all of these things led us obviously to reset the second half of the year on the NVIDIA partnership. It is definitely Ethernet.

Speaker Change: Holding budget back just to be ready to expand it on AI once they get their strategy fully baked. So that's about what I can tell you at this point.

Speaker Change: Thank you Nita Michelle can we go to the next analyst.

Speaker Change: David Belt with UBS you May go ahead.

David Belt: Great. Thanks, guys for taking my question. So maybe just to step back for a second shop and maybe for Scott also if I look at your guide for this year.

David Belt: Basically back to fiscal 19 revenue levels. So I'm just trying to think about how your longer term model works in the context of.

David Belt: <unk>.

David Belt: 5% to 7% guide that you laid out at the Investor briefing a number of years ago.

David Belt: Just sort of investor as sort of customers Digest product.

Charles H. Robbins: I was in the meeting when we first talked about this with Jensen, and he agreed that we would include our Ethernet technology with their GPUs in creating the stack. There will also be servers as well, and there will be multiple versions of this over time. But it will include our Ethernet technology when they're connecting multiple clusters. Thank you, Amit.

David Belt: Obviously, it would suggest that maybe there's some more share loss going on in the core networking portfolio given some of the other parts of the business has grown so I just wanted to try to get a sense for how youre thinking about the portfolio today, given we're kind of back to fiscal 19, and then from a profitability standpoint, obviously, you've done a tremendous job then I would imagine the cost cutting those along.

Sami Badri: Michelle, we have the next analyst. Thank you. Meta Marshall with Morgan Stanley. You may go ahead. Great, thanks.

David Belt: Those lines to keep margins higher but even here an opportunity he's margin in need of price going forward to take back some of the share. If there is a disruption in the market by a potential strategic transaction in the marketplace today.

Meta A. Marshall: Maybe, you know, you've mentioned service provider, but I guess, just getting a sense of whether you're seeing more weakness in data center or edge, or if it comes to kind of the five investment priorities that you had noted that enterprises had a couple of quarters ago, or any one of those areas still getting significantly prioritized versus not getting prioritized significantly. And then maybe, as a second question, you know, how are you seeing enterprises think about AI and think about where the budgets for AI are coming from? Any commentary would be helpful there.

Yes, David I'll start and then Chuck you can you can chime in on share.

David Belt: The way to think about the 5% to 7%. If you go back to when we gave that metric you remember it was in 2021 actually pre all of the supply chain.

Speaker Change: Volatility that we've seen and since then of course, we've seen.

Speaker Change: Fly chain set in which caused a spike in product orders.

Speaker Change: And then subsequent big building up of our backlog as we cleared the backlog we saw a spike in revenue.

Speaker Change: And so it's been it's been difficult to look at year on year compares as is all of those dynamics were going on what we're seeing now is as we've cleared the backlog we cleared it very quickly given the strength of our supply chain team that bottleneck has just moved downstream. So I don't think you can look at this year's revenue and try to somehow compare it to historical.

Charles H. Robbins: Thanks. Yeah, thanks, Meta. So I would say that what we do see customers investing in is clearly cybersecurity. We see observability, as you saw, the 16% growth rate. We even saw positive collaboration this quarter, which was a good sign. They're still at various phases of dealing with this hybrid work situation. We had a very strong quarter with our devices, and our video device businesses. We see customers investing in their customer experience through technologies like contact centers. And so we see a lot of that. We see customers continue to invest in their application rearchitecture, which leads to both observability opportunities as well as the re-architecture of their networks to deal with the traffic flows that we've been talking about for a couple of years.

Speaker Change: Because of all the all the moving parts underneath the covers what underpinned that 5% to 7%. When we gave it to you was that's the aggregated growth of the of the <unk>.

Speaker Change: Tam of the markets that we play in.

Speaker Change: And so at this point.

Speaker Change: Still see that as the longer term, where we are headed.

Speaker Change: Looking at year on year growth rates, I don't think youre going to see those growth rates begin to normalize until we worked through the inventory that's in the field right now which is one of the biggest headwinds we've got.

Speaker Change: Right, then we can get back to regular ordering and they needed to lap that right you need to go four quarters out to be able to compare it to a more normalized point. So I think that's the way you need to think about that longer term, but there is there is no change at this point, we will update the longer term model. After we finished the acquisition of <unk> and can give you better insight into what we looked like as a combined company.

Charles H. Robbins: I think the real issue right now is that we ship so much networking equipment in our core business that that's where the challenge is, and they're just trying to get all that implemented right now. As it relates to the enterprise and how they're thinking about AI, what I will tell you is that over the last 90 days, we began to see the Pipeline for AI Use Cases in the Enterprise begin to emerge, and there's heavy work going on in financial services. I would say it's early in what they're trying to think through, but we are seeing opportunities arise, and I think that there have been some comments. Not enough for me to translate this to a massive trend, but there were some comments from some of our field teams that they see customers holding back budget just to be ready to expend it on AI once they get their strategy fully baked. So that's about what I can tell you at this point. Thank you. Amita, Michelle, can we go to the next panel? Yes, David Vogt with UBS. You may go ahead.

Speaker Change: Yes, David on the share loss I think if you look at the just look at the last published reports that came out after.

David Belt: Q3 calendar calendar Q3.

David Belt: <unk>.

David Belt: The in our four largest markets. So if you take campus switching you take wireless and you take SP routing.

David Belt: We actually gained share so I don't know where the share loss thesis is coming from when you look at data Center switching you will see it show up as a share loss.

David Belt: But to be we.

David Belt: We have to understand that one of our major competitors their reports they're web scale.

David Belt: Sales into data center switching and we report our web scale sales into SP routing, so those turn into sort of apples and oranges categories, but the others based on the last reports that were put out we actually gained share. If you look at a rolling four quarter over even over the last three years.

Speaker Change: Thank you David Michelle next analyst.

Speaker Change: Simon Leopold with Raymond James You May go ahead Sir.

David Vogt: Great, thanks, guys, for taking my question. So maybe I just want to step back for a second, Chuck, and maybe Scott, also. You know, if I look at your guide for this year, I mean, we're basically back to fiscal 19 revenue levels. So I'm just trying to think about how your longer-term model works. In the context of, you know, that five to 7% guide that you laid out at the investor briefing a number of years ago, as sort of an investor as sort of customers digest product, you know, obviously, it would suggest that maybe there's some more share loss going on in the core networking portfolio, given some of the other parts of the business have grown. So just want to kind of try to get a sense for how you're thinking about the portfolio today, given we're kind of back to fiscal 19.

Thanks for taking the question I've got.

Simon Leopold: An easy one and a little bit harder one I'll start with the easy one.

Simon Leopold: The other.

Simon Leopold: It looks like Youre order trajectory its getting somewhat better so the orders this quarter down 12% not too bad.

Simon Leopold: And I know you don't forecast orders, but maybe if you can talk about when you expect orders could turn positive again.

Speaker Change: Given the comparison and the trend the other question I wanted to see if you could discuss how you.

Speaker Change: Envision the AI clusters in terms of will the web scale operators choose multiple vendors in a single cluster or will they designate.

Speaker Change: Maybe different data centers to different suppliers or will they mix and match how do you see the split playing out, particularly in the Hyperscale opportunity and I really mean is more longer term 'twenty five 'twenty six not currently when were dominated by infiniband, but when Ethernet starts taking.

Speaker Change: Sure. Thank you.

Speaker Change: Yes, Thanks Simon.

Speaker Change: So on the order trajectory.

David Vogt: And then from a profitability standpoint, you know, obviously, you've done a tremendous job, and I would imagine the cost cutting goes along those lines to keep margins higher. But is there an opportunity to use margin and maybe price going forward to take back some of the share if there's a disruption in the market by, you know, a potential strategic transaction in the marketplace today? Yeah, David, I'll start.

Speaker Change: I think what we clearly don't guide bookings, but what I would tell you is that even.

Even as our teams.

Speaker Change: Modified their second half outlook, the second half will still be more favorable than the first half. So your assessment of sort of the trajectory I think is valid.

Speaker Change: And I'll leave it at that on the AI clusters, I think it's a good question because what what Youll hear us us and competitors talking about a number of web scale players that are using <unk>.

Speaker Change: Our technology underneath Gpus are Ethernet technology on our Gpus and so I think it's important to remember they always tend to have a dual vendor strategy. They always want two sources.

Richard Scott Herren: And then Chuck, you can you can chime in on how to think about the five to 7%. If you go back to when we gave that metric, you remember, it was in 2021, actually, before all of the supply chain volatility that we've seen. And since then, of course, we've seen the supply chain set in, which caused a spike in product orders. And then, you know, subsequent big building up of our backlog, as we cleared the backlog, we saw a spike in revenue. And so it's been difficult to look at year on year comparisons, as you know, as all those dynamics were going on.

Speaker Change: And so we're both actually the two of US are actually playing in the space today and I would say today. They are completely homogenous clusters and I think it's too early to tell whether there'll be some benefit over time for them to mix those.

Speaker Change: My sense is unless there's something that changes significantly or there is some sort of technology reason for gpus to be mixed which I can't I can't speak to at this point I don't think the underlying network will be mixed I, just don't think there's any benefit for them to do that.

Richard Scott Herren: What we're seeing now is as we've cleared the backlog, we cleared it very quickly, given the strength of our supply chain team, that bottleneck has just moved downstream. So I don't think you can look at this year's revenue and try to somehow compare it to last year's because of all the moving parts underneath the covers. What underpinned that five to 7% when we gave it to you was that it was the aggregated growth of the TAM of the markets that we play in. Right.

Speaker Change: Thank you Simon Michelle next question.

Simon Leopold: Thank you Tal <unk> with Bank of America, you May go ahead.

Simon Leopold: Hi.

Tal: I have two questions. The first one is security.

Speaker Change: The market is great.

Tal: We made two years ago, three years ago, and you spoke about your strategy in going to market, but it is the only growing 3%.

Speaker Change: What is happening there and what can you do to fix security yet.

Speaker Change: From this market growth.

Speaker Change: And then maybe I'll ask my follow up.

Speaker Change: Okay. Thanks, Tal so I think over the last few quarters that I've been pretty consistent that we thought the second half of this fiscal year, we would start to see an acceleration of security and I can give you. Some highlights where we are seeing some of that some green shoots early.

Richard Scott Herren: And so at this point, we still see that as the longer-term direction in which we're headed. I think looking at year-on-year growth rates, I don't think you're going to see those growth rates begin to normalize until we work through the inventory that's in the field right now, which is one of the biggest headwinds we've got. Right, and then we can get back to regular ordering. And then you need to lap that, right? You need to go four quarters out to be able to compare it to a more normalized point.

Speaker Change: Some of the new innovation like Xdr and secure access multi cloud defense. The suites are we're seeing.

Speaker Change: Good pipeline build with those technologies.

Speaker Change: D R.

Speaker Change: We now have we announced that in April of last year, we shipped it in August.

Charles H. Robbins: So I think that's the way you need to think about that longer term. But there's no change at this point; we will update the longer term model after we finish the acquisition of Splunk and can give you better insight into what we look like as a combined company, and David on the share loss. I think if you look at the just look at the last published reports that came out after, Q3, calendar, calendar Q3. In our four largest markets, so if you take campus switching, you take wireless, and you take SP routing, we actually gain share. So I don't know where the share loss thesis is coming from.

Speaker Change: And we have 230 customers 230, plus customers on the platform today and the important thing to remember is that it's a big platform play.

Speaker Change: And we actually typically see that as a six to nine month sales cycles. So to have 230 customers already I think as a statement on the value that our customers are saying that's going to be a real.

Speaker Change: Important integration point with Splunk by the way.

Speaker Change: So that's that we see we see we feel good about the pipeline.

Speaker Change: From a demand perspective, just to give you some insight the Americas. The demand was almost double digits. This past quarter, which is the highest we've seen in a while so I think we're seeing a lot of good indicators.

Simon Matthew Leopold: When you look at data center switching, you will see it show up as a share loss, but to be We have to understand that one of our major competitors there reports, their web skill. Sales into data center switching and we report our web scale sales into SP routing, so those turn into sort of apples and oranges categories, but the others, based on the last reports that were put out, we actually have gained share if you look at a rolling four quarters over even over the last three years. Thank you, David. Michelle is the next analyst. Thank you. Simon Leopold with Raymond James.

Speaker Change: Indicators.

Speaker Change: And if you just watch over the next six to nine months, you're going to see more and more innovation that comes out.

Speaker Change: And I think youll begin to believe and see the results around that same timeframe.

Speaker Change: Thank you Tal and we'll get to your other question at some point after the call Michelle can we move to the next speaker.

Speaker Change: Sami <unk> with Jpmorgan you May go ahead Sir.

Charles H. Robbins: You may go ahead. Thanks for taking the question. I've got an easy one and a slightly harder one. I'll start with the easy one and then the harder one.

Sami Badri: Oh, hi, Thanks for taking my question Chuck.

Sami Badri: My first question and ask you to go back to some of the drivers of demand that you see in Q.

Tal Liani: It just looks like your order trajectory is getting somewhat better. So the orders this quarter were down 12%, not too bad. And I know you don't forecast orders, but maybe if you could talk about when you expect orders to turn positive again, given the comparison and the trend. The other question I wanted to see if you could discuss how you envision the AI clusters in terms of will the web scale operators choose multiple vendors in a single cluster or will they designate maybe different data centers to different suppliers or will they mix and match? How do you see the split playing out, particularly in the hyperscale opportunity? And I really mean this more in the longer term, 25, 26, not currently when we're dominated by InfiniBand but when Ethernet starts taking more share. Thank you. Yeah, thanks, Simon.

Walked away from the call last time sensing a sense of optimism about the sharp rebound renewals TV inventory digestion complete, but I guess, what I'm hearing from you today is even as that inventory digestion aimed in fiscal 'twenty forward youre seeing a bit more of a macro impact on your customer demand and your expectations still sort of intact in terms of thinking about.

Sami Badri: More.

Sami Badri: Sharp rebound as you go into fiscal 'twenty five if you could share what you're seeing from customers that and for my follow up.

Sami Badri: BDO partnership how should we think about the impact of that on your own AI auto target of 1 billion or is it really most of that partnership between lasers beyond that target window target timeframe. Thank you.

Charles H. Robbins: So, on the order trajectory. I think what we clearly don't guide bookings, but what I would tell you is that even as our teams modified their second half outlook, the second half will still be more favorable than the first half, so your assessment of sort of the trajectory is valid, and I'll leave it at that.

Speaker Change: Thanks, I would say on the.

Speaker Change: The thing that's changed from last quarter is that we do just see a little more caution with our customers I don't want to over rotate and say that it's a massive shift, but we definitely saw more caution.

Speaker Change: We took we talked with our sales leaders ahead of the call and they indicate we asked them point blank.

Charles H. Robbins: On the AI clusters, I think it's a good question because what you'll hear is us and competitors talking about a number of web scale players that are using our technology underneath GPUs, our Ethernet technology under GPUs. And so I think it's important to remember they always tend to have a dual vendor strategy. They always want two sources. And so we're both actually, the two of us are actually playing in the space today. And I'd say today that they're completely homogeneous clusters.

Speaker Change: Was there more caution or less or the same caution from the prior quarter end and we heard more little bit more and then we saw the push out of the forecast. So that just tells us that there there is a little bit more in the system.

Speaker Change: So therefore, I think we need a couple of quarters to see it play out before we can declare what's going to happen in fiscal 'twenty five.

Speaker Change: On the Nvidia disc.

Speaker Change: A discussion.

Speaker Change: A couple of comments, we talked about the $1 billion of orders, which I know someone's going to ask me about at some point and what I would say is that.

Charles H. Robbins: And I think it's too early to tell whether there'll be some benefit over time for them to mix those. My sense is that unless there's something that changes significantly, or there's some sort of technological reason for GPUs to be mixed, which I can't, I can't speak to at this point, I don't think the underlying network will be mixed. I just don't think there's any benefit for them to do that. Thank you, Simon. Michelle, next question. Thank you. Tal Liani with Bank of America.

In the last 90 days our pipeline.

Speaker Change: <unk>.

AI opportunities continue to grow the pipeline is now almost three times.

That particular number that we gave last time, which were more orders that we see in 'twenty five. The total pipeline is now about three times that roughly three times that and I would say that virtually none of that.

Tal Liani: You may go ahead. Thank you. Tal Liani with Bank of America. You may go ahead. I have two questions. Mark.

Speaker Change: Is anything associated with the Nvidia partnership yet.

All independent of that.

Speaker Change: Thank you Simeon Michelle next question please.

Ben Reitzes with Melius Research you May go ahead.

Charles H. Robbins: What is happening there and what, Martin, and then maybe I'll. Okay, thanks, Tal. So I think over the last few quarters, I've been pretty consistent that we thought the second half of this fiscal year would start to see an acceleration of security. And I can give you some highlights where we are seeing some of that early green shoots. Some of the new innovation like XDR and secure access, multi-cloud defense, the suites, we're seeing a good pipeline built with those technologies. XDR: We announced that in April of last year; we shipped it in August, and we have 230 customers, 230 plus customers on the platform today. And the important thing to remember is that it's a big platform game.

Ben Reitzes: Hey, Thanks for the question guys, Hey, Chuck Hey, Scott.

Ben Reitzes: Wanted to ask about the HP Juniper deal are you seeing any uncertainty in the market near term and how do you think that.

Ben Reitzes: Hopes you long term and.

Ben Reitzes: If you Chuck.

Ben Reitzes: Chuck If you don't mind, just with regard to that last AI comment.

Ben Reitzes:

Ben Reitzes: Your one of your competitors, obviously is expecting quite a big pickup next year next calendar year.

Ben Reitzes: Do you feel like that AI 3 billion in pipeline are so kicks in next year next calendar year or what's your timing on that thanks. So much.

Speaker Change: Thanks Ben.

Speaker Change: So I would say on the HP juniper deal.

Speaker Change: The one area, where they have meaningful overlap is in wireless and I don't know if there's any connection to the fact that we had a 50% increase in million dollar plus wireless deals sequentially.

Speaker Change: So it's hard to say, but I mean, there is a lot of noise in the system.

Speaker Change: In the industry about what they do there, but I can't say, specifically that any any customers have talked to me about it to be honest.

Speaker Change: So I think we're I think it's a little early for them to.

Charles H. Robbins: So I think we're seeing a lot of good indicators. And if you just watch over the next six to nine months, you're gonna see more and more innovation that comes out. And I think you'll begin to believe and see results around that same time frame. Thank you, Tal, and we'll get to your other question at some point after the call. Michelle, can we move to the next speaker?

Speaker Change: For the customers to be expressing that concern that they may be asking them directly but theyre not talking to us.

Speaker Change: On the timing, yes, I think I think.

Speaker Change: We said fiscal 'twenty, five which starts in August of this year and I think you probably should assume most of that is probably in the second half hour guests, but we'll see how that how things play out I think customers are going to move as fast as they possibly can but we are still in the early strategy and planning stages right now on on most of it the pipeline stuff are well defined use K.

Samik Chatterjee: Thank you. Samik Chatterjee with JP Morgan. You may go ahead. Hi Chuck, I'm going to, for my first question, ask you to go back.

Speaker Change: Mrs that are already.

Speaker Change: That are already in place with certain customers and we're actually just working through the opportunities. Yes, but then our expectation is the majority of that $1 billion in orders will turn into revenue in our fiscal 'twenty five.

Charles H. Robbins: The Drivers of Demand that you're seeing here. We walked away from the call last time with a sense of optimism about a sharp rebound once you see the inventory digestion complete. But I guess what I'm hearing from you today is, even as that inventory digestion ends in fiscal 24, you're seeing a bit more of a macro impact on your customer demand. And are your expectations still sort of intact in terms of thinking about a more sharp rebound as you, 25.

Speaker Change: Clear.

Speaker Change: Thank you Ben Michelle next question.

Speaker Change: Thank you, Matt Mcnab with Deutsche Bank, You May go ahead Sir.

Matt Mcnab: Hey, thanks, so much.

Matt Mcnab: Keep it to one and one follow up so quite main question just around inventory digestion is that dynamic primarily affecting enterprise and commercial customers.

Charles H. Robbins: If you can share what you're seeing from customers there, and for my follow-up question, the NVIDIA partnership, how should we think about the impact of that on your AI auto target of 1 billion? Or is it really most of that partnership materializes beyond that sort of target window, target? Thanks.

Matt Mcnab: Can you talk a little bit about the visibility you have got towards this actually resolving itself by fiscal year end and then follow up just on gross margins you were fairly stable sequentially.

Matt Mcnab: I think the guide implies more of the same so I'm. Just wondering are we now largely passed out a lot of the supply chain dynamics or headwinds.

Charles H. Robbins: I would say on the, the thing that's changed from last quarter is, I would say on the, the thing that's changed from last quarter is that we do just see a little more caution with our customers. I don't want to overreact and say that it's a massive shift, but we definitely saw more caution. We talked with our sales leaders ahead of the call, and they indicated that there was more caution or less or the same caution from the prior quarter. And we heard more, a little bit more. And then we saw the push out of the forecast.

Matt Mcnab: Or has anything changed on the supply chain front. Thanks.

Speaker Change: Yeah. So I'll take the first and then Scott can take the second on the inventory.

Speaker Change: <unk>.

Speaker Change: Digestion issue I think it's.

Richard Scott Herren: I'd say, it's largely an enterprise and service provider issue and particularly the cloud providers, we think they've got probably in excess of 2020 plus weeks of inventory that they're working through right now as they built up.

Richard Scott Herren: Lead times are so long.

Speaker Change: We have.

Speaker Change: We have a lot of our.

Charles H. Robbins: So that just tells us that there is a little bit more in the system. Therefore, I think we need a couple quarters to see it play out before we can declare what's going to happen in fiscal 25. On the NVIDIA discussion, I have a couple of comments. We talked about the billion dollars in orders, which I know someone's going to ask me about at some point. And what I would say is that, in the last 90 days, our pipeline of AI opportunities continued to grow. The pipeline is now almost three times larger. That particular number that we gave last time, which was more orders than we see in 25, the total pipeline is now about three times that, roughly three times that, and I would say that virtually none of that is anything associated with the NVIDIA partnership yet. It's all independent of that.

Speaker Change: Enterprise products that are tethered to the cloud for management.

Speaker Change: <unk> and so we see that the lag between when we ship it to the customer and when they connected I gave the Meraki example, in my prepared remarks, and so we do have visibility and we can we can actually see.

Speaker Change: On some aspects of the portfolio.

Speaker Change: How the timeframe between shipments and connectivity is shrinking and it's not shrinking as fast as we thought it would which leads us to believe this is going to extend through the end of 'twenty four.

Speaker Change: So that's where we are Scott gross margins yes.

Speaker Change: You saw in the quarter is of course gross margins continued to show a year on year, improving trend roughly flat as you said sequentially.

Speaker Change: There is a couple of dynamics, but to your to your question on where does the settled down I think it settles in and the range. We're in right now in the 66% to 67% range through the end of the year. There is both the things that are happening from a freight and delivery standpoint freight cost with what's happening in the Red Sea have gone up slightly.

Benjamin Alexander Reitzes: Thank you, Samik. Michelle, next question. Ben Reitzes with Milius Research, you may go ahead. Hey, thanks for the question, guys. Hey, Chuck.

Speaker Change: We continue to see a little bit of component pressure, although in the commodities sections, we're seeing some benefit there.

Charles H. Robbins: Hey Scott, I wanted to ask about the HP Juniper deal. Are you seeing any uncertainty in the market near term? And how do you think that will help you long term?

Speaker Change: Yes.

Speaker Change: Scale of the services ramp up.

Speaker Change: Obviously services revenue trails, the product revenue, we had those three really strong quarters of product revenue growth. We're seeing the tail of that now in our services revenue growth and since a lot of the cost center. If our services are fixed you get better leverage when that happens. So I think when you add all those together we should settle in in the 66% to 67% range and the majority of it.

Charles H. Robbins: And, Chuck, if you don't mind, just with regard to that last AI comment, you're one of your competitors, obviously, is expecting quite a big kickup next year, next calendar year. Do you feel like that AI rebillion in the pipeline or so kicks in next year, next calendar year? Or what's your timing on that? Thanks so much.

Speaker Change: Not all of the supply chain constraints that we felt are behind us at this point.

Speaker Change: Thank you Matt Michelle next question.

Michelle: Thank you Michael <unk> with Goldman Sachs. You May go ahead Sir.

Michael: Hey, good afternoon, and thanks for the question Chuck and Scott I just have two.

Speaker Change: First just on the.

Michael: The revenue guidance I think based on the midpoint of it the implied fiscal <unk> revenue guidance.

Michael: Only implies about plus 1% quarter on quarter.

Charles H. Robbins: But I mean, there is a lot of noise in the system or in the industry about what they do there. But I can't say specifically that any, any customers have talked to me about it, to be honest. So I think it's a little early for the customers to be expressing that concern. They may be asking them directly, but they're not talking to us.

Speaker Change: Given that we're back to a normal backlog, what's preventing that from going back to a more normal level of seasonality.

Speaker Change: And then as a follow up to Tom's question earlier on the Nvidia AI deal.

Speaker Change: I just wanted to clarify I understand that it's Ethernet.

Charles H. Robbins: On the timing, yeah, I think, you know, we said fiscal 25, which starts in August of this year. And I think you probably should assume most of that's probably in the second half, I would guess, but we'll see how the how things play out. I think customers are going to move as fast as they possibly can, but we're still in the early strategy and planning stages right now with most of it. The pipeline stuff is well defined use cases that are already in place with certain customers.

Speaker Change: But will it be both.

Speaker Change: And that is.

Spectrum acts as well as Cisco's Ethernet.

Speaker Change: How will that be sold together if thats the correct assumption. Thank you.

Speaker Change: Michael on the midpoint of the revenue guide the math would lead you to what you just said I think no.

Speaker Change: One ever wants to have to reset guy.

Speaker Change: Guidance much less have to do it twice.

Speaker Change: We've got as Chuck just said as we look at all the various factors coming in from the field, we see caution and I think you should expect that Theres caution in our guide at this point.

Speaker Change: On the video front I think.

Matthew Niknam: And we're actually just working through the opportunities. Yeah, but Ben, our expectation is the majority of that billion dollars in orders will turn into revenue in our fiscal year 25. Thank you, Ben. Michelle, next question. Thank you. Matt Niknam with Deutsche Bank. You may go ahead. Hey, thanks so much.

Speaker Change: Look one of the key.

Speaker Change: Benefits that they see us leveraging our enterprise go to market and our global ecosystem and partner community.

Speaker Change: <unk>.

Speaker Change: Therefore, when we are when these solutions are flowing through our.

Speaker Change: Channels, and our sales teams and our partners that will be Cisco Ethernet.

Matthew Niknam: And I'll keep it to one and one follow-up. So the main question just around inventory digestion, is that dynamic primarily affecting enterprise and commercial customers? And, you know, can you talk a little bit about the visibility you've got towards this actually resolving itself by fiscal year end, and then follow up just on gross margins? You were fairly stable sequentially, and I think the guide implies more of the same. So I'm just wondering, you know, are we now largely past a lot of the supply chain dynamics or headwinds, or has anything changed on the supply chain front? Thanks.

Speaker Change: Thank you Michael Michelle next question.

George Notter with Jefferies. You May go ahead Sir.

George C. Notter: Hi, guys, thanks very much.

George C. Notter: I guess im just curious about that.

George C. Notter: Are there any mechanisms or activities you guys are using to help accelerate the clearance of inventory from the channel any price discounting any rebating.

George C. Notter: Stock rotation.

Speaker Change: Taking an active approach here thanks.

Speaker Change: I'll comment I'll make one quick comment I think I said this in my prepared remarks as well we've deployed a lot of transaction services for some of our larger customers just to help them.

Charles H. Robbins: I'll take the first and Scott, you take the second on the inventory digestion issue. I think it's, I'd say it's largely an enterprise and a service provider issue. And particularly the cloud providers, we think they've got probably in excess of 20, 20 plus weeks of inventory that they're working through right now as they built up, you know, when the lead times were so long. We have.

Speaker Change: Do that and I know that our sales teams were talking this week's got maybe you remember or you have some more detail on looking at some partner incentives to help yeah. We absolutely are working with the field on that and a lot of cases.

Speaker Change: Boils down to a lack of skilled resources required.

At both sometimes.

Speaker Change: Sometimes that our partner level, sometimes at the customer level to get that done. There's only so much you can do to accelerated we have put in place incentives to make that accelerate to your other point on cancellations or stock rotation, we're seeing those continuing to be well below where they were pre pandemic. So we're not seeing any of that any pressure on that front.

Charles H. Robbins: We have a lot of our enterprise products that are tethered to the cloud for management purposes, and so we see the lag between when we ship them to the customer and when they connect them. I gave the Meraki example in my prepared remarks.

Speaker Change: Thank you George Michelle next question.

Speaker Change: Well Jin Ho with Bloomberg Intelligence you May go ahead.

Charles H. Robbins: And so we do have visibility, and we can actually see, on some aspects of the portfolio, how the time frame between shipments and connectivity is shrinking, and it's not shrinking as fast as we thought it would, which leads us to believe this is going to extend through the end of 24. So that's where we are.

Jin Ho: Great. Thank you for taking my question.

Jin Ho: Given that most of the weakness is going to be on the networking side could you just talk a little bit more about the future software subscription renewal rates you did a good job this quarter with such a software subscriptions going up 5%, but given that.

Speaker Change: Networking is poised to be down I'm curious, where that's heading going forward.

Charles H. Robbins: Scott, gross margins? Yeah, what you saw in the quarter is, of course, gross margins continued to show a year-on-year improving trend, roughly flat, as you said, sequentially, there's a couple of dynamics but to your to your question on where does this settle in I think it settles in in the range we're in right now in the 66 to 67 percent range through the end of the year there's you know both the things that are happening from a freight and delivery standpoint freight costs with what's happening in the red sea have gone up slightly that we continue to see a little bit of component pressure although in the commodity sections we're seeing some benefit there, The scale of the services ramp up, as you know, obviously services revenue trails the product revenue.

Speaker Change: Yes, I think thanks for the question John I think the way to think about it is we've put a as you can imagine when you built up the level of annualized recurring revenue that we have we put a huge amount of focus on both customer success and driving adoption and then turning that adoption into renewals, we've invested fairly heavily in that space over the last couple of years and we're seeing renewed.

Speaker Change: Rates respond accordingly.

Speaker Change: When you look at where we're more software heavy outside of networking, but in both security and collab.

Speaker Change: As you saw we reported growth revenue growth in both of those categories observe ability is almost exclusively software and we posted 16% revenue growth and observe ability. So we are seeing that actually trend in the right direction.

Speaker Change: Thank you Jim.

Sean: Sean next question. Thank.

Tim: Thank you Tim long with Barclays. You May go ahead Sir.

Charles H. Robbins: We had those three really strong quarters of product revenue growth, and we're seeing the tail of that now in our services revenue growth. A lot of the costs underneath our services are fixed; you get better leverage when that happens. So I think when you add all those together, we should settle in in the 66 to 67% range. And the majority of, if not all of, the supply chain constraints that we felt are behind us. Thank you, Matt. Michelle, next question. Thank you. Michael Ng with Goldman Sachs. You may go ahead. Hey, good afternoon. Thanks for the question, Chuck and Scott. I just have two.

Tim Long: Thank you.

Tim Long: Yes, one question one follow up so first maybe Chuck can you talk a little bit.

Tim Long: Gives me about the kind of margin growth trade off.

Tim Long: Sure.

Tim Long: With the with the head count reduction.

Tim Long: Obviously protecting margin here, but how do you think about that trade off.

Tim Long: Given the challenging growth we've seen and then just on a follow up with the all of the AI comments Chuck could you just.

Tim Long: Remind us kind of where we are with <unk>.

Charles H. Robbins: I'm a product standpoint are you seeing.

Charles H. Robbins: More traction for Silicon, one software or the full system products. If you can just give us a little color on kind of where you're seeing that that pipeline growing. Thank you.

Michael Ng: First, just on the revenue guidance, I think based on the midpoint of it, the implied fiscal 4Q revenue guidance only implies about + 1% quarter on quarter. You know, given that we're back to a normal backlog, what's preventing that from going back to a more normal level of seasonality? And then, as a follow-up to Amit's question earlier on the NVIDIA AI deal, I just wanted to clarify, you know, I understand that it's Ethernet, but will it be both NVIDIA's Spectrum X as well as Cisco's Ethernet? How will that be sold together, if that's the correct assumption? Thank you. Michael, at the midpoint of the revenue guide, the math would lead you to what you just said. I think no one ever wants to have to reset.

Charles H. Robbins: Yeah. Thanks, Tim so on the margin growth trade off.

Speaker Change: We're always considering that and we're very disciplined though and.

Speaker Change: And we think that gross margins are clearly a reflection of the value that your customers see in your technology and what you deliver and if you look at a lot of our competitors.

And you look at some of the market share I mean, some of the gross margins that they have that tells you that they are viewed more as a commodity.

Speaker Change: And I think that our customers see real value in what we deliver to them. So while we always are.

Speaker Change: Look at.

Speaker Change: Margins versus growth.

Speaker Change: We also are just disciplined across both.

Speaker Change: On the AI front.

Speaker Change: Silicon one is a big play clearly.

Speaker Change: We delivered next generation silicon into several of the cloud providers right now we've got the Ethernet running and three of the four big ones.

Richard Scott Herren: Guidance, much less have to do it twice, as Chuck just said, as we look at all the various factors coming in from the field, we see caution, and I think you should expect that there's caution in our guidance. On the NVIDIA front, I think one of the key benefits that they see is leveraging our enterprise go-to-market and our global ecosystem and partner community. Therefore, when we are when these solutions are flowing through our channels and our sales teams and our partners, it will be Cisco Ethernet. Thank you, Michael. Michelle, next question. Thank you. George Notter with Jefferies.

Speaker Change: And we will use the same silicon.

Speaker Change: In the enterprise data center over time.

Speaker Change: Got.

Speaker Change: Gpus and our ucs platforms.

Speaker Change: And so it's it's evolving but we have.

Speaker Change: I tell our teams unlike.

Speaker Change: The original cloud transition that we've talked on this call several times about how we were not prepared for the infrastructure play in the cloud World I think we are absolutely.

Speaker Change: Ready and well equipped to to succeed in this transition to AI.

Speaker Change: It will be a tailwind for us as we get into it over time.

Speaker Change: Thank you Tim Michelle next question.

Michelle: Thank you. Our next question comes from Aaron Rakers with Wells Fargo.

George Charles Notter: You may go ahead. Hi guys, thanks very much. I guess I'm just curious about any mechanisms or activities you guys are using to help accelerate the clearance of inventory from the channel, any price discounting, any rebates, stock rotation, you know, how are you taking an active approach here? Thanks. I'll comment.

Aaron Christopher Rakers: Yes, thanks for taking the question I'll stick to one just building on that last question I know.

Aaron Christopher Rakers: Tom you've talked a little bit about how large your web scale businesses can you just remind us again the presence you have in some of the web scale opportunities either from a size and maybe maybe ex the AI discussion what kind of growth rates, you're seeing particularly with those web scale customers right now.

Charles H. Robbins: I'll make one quick comment. I think I said this in my prepared remarks as well. We've deployed a lot of transaction services for some of our larger customers just to help them do that. And I know that our sales teams were talking this week, Scott, maybe you remember, or you have some more detail on looking at some partner incentives to help. Yeah, we absolutely are working with the field on that. In a lot of cases, it boils down to a lack of the skilled resources required at both, sometimes at our partner level, sometimes at the customer level, to get that done. There's only so much you can do to accelerate it.

Aaron Christopher Rakers: So our team.

Aaron Christopher Rakers: <unk> measures.

What their use cases are franchises or however, you want to think about it there are specific areas within the infrastructure that we identified for each of the web scale players and Scott keep me honest I want to say we were designed into 16 or 21 21 21 of those.

Aaron Christopher Rakers: And so that's how I would think about it I don't think that right now if you looked at the growth numbers.

Aaron Christopher Rakers: They wouldn't be reflective of whats going on because they are just digesting inventory right now so they are they're not in a position where they need to order a lot because lead times are normalized so much. So I don't think that's.

Richard Scott Herren: We have put in place incentives to make that accelerate. To your other point on cancellations or stock rotation, we're seeing those continuing to be well below where they were pre-pandemic, so we're not seeing any pressure on that.

Aaron Christopher Rakers: It's not even relevant I think understanding those 'twenty, one use cases and as I said earlier.

George Charles Notter: Thank you, George. Michelle, next question. Thank you. Wu-Jin Ho with Bloomberg Intelligence. You may go ahead. Great, thank you for taking my question. Given that most of the weakness is going to be on the networking side, could you just talk a little bit more about future software subscription renewal rates? You did a good job this quarter with software subscriptions going up 5%, but given that networking is poised to be down, I'm curious where that's heading. Yeah, I think. Thanks for the question.

Aaron Christopher Rakers: They want dual source and they want dual source all the way down to the silicon level.

Aaron Christopher Rakers: In the traditional days with carriers. They they wanted to vendors who would provide two different integrated systems. In this case that may be the case with cloud, but they also look at silicon. They look at components, there very deep on wanting to make sure that.

Aaron Christopher Rakers: They have resiliency and optionality.

Speaker Change: And the only thing I'd add is and we said it earlier there is no question that over time, given the way we're positioned.

Speaker Change: From a <unk>.

Richard Scott Herren: I think the way to think about it is, as you can imagine, when we built up the level of annualized recurring revenue that we have, we put a huge amount of focus on both customer success and driving adoption, and then turning that adoption into renewals. We've invested fairly heavily in that space over the last couple of years. And we're seeing renewal rates respond accordingly. You know, when you look at where we're more software heavy outside of networking, but in both security and collaboration, we, as you saw, we reported growth, revenue growth in both of those categories. Thank you, Eugene.

Speaker Change: Complete box, a white box and a silicon standpoint, there is no question that AI is a tailwind for us longer term.

Speaker Change: Thank you Erin and Michelle we have time for one last question. Thank.

Speaker Change: Thank you Sir James Fish with Piper Sandler you May go ahead Sir.

James E. Fish: Hey, guys. Thanks for squeezing me in here.

James E. Fish: Scott based on a couple of comments you made around gross margins just wondering with supply chain starting to go the other way and supply more readily available could we see the price increases enacted in the past now have to be given back and any sense to how should we think about the annualized cost savings on these reductions understanding there are.

James E. Fish: People here and its difficulty in.

Richard Scott Herren: Sean, next question. Thank you. Kim, along with Barclays, you may go ahead. Thank you.

James E. Fish: What areas do you guys expect to kind of reduce down and if some of those reductions are filled elsewhere in terms of like a net basis on head count thanks, guys.

Kim: Yeah, one question, one follow-up. So first, David Chalk, can you talk a little bit, excuse me, about the kind of margin growth trade-off? With the headcount reduction, obviously, protecting margin here, but how do you think about that trade-off, given the challenging growth we've seen? And then, on a follow-up to all of the AI comments, Chuck, could you just remind us kind of where we are with, you know, from a product standpoint? Are you seeing more traction for Silicon One or software or, you know, the full system products? If you could just give us a little color on kind of where you're seeing that pipeline growing. Thank you.

Richard Scott Herren: Yeah on the price declines you've got to remember go back to why we put the price increases and to begin with and that was really to offset the higher costs that we were seeing from many of our suppliers as they everyone was dealing with constraints in supply demand is pretty straightforward.

Richard Scott Herren: We haven't seen in the wake of the some of the commodities the prices have come down memory is a good example, but we haven't seen broadly is cost decreases coming in from our providers at this point and so with that in.

Richard Scott Herren: Do you see that reflected in our gross margins, which have returned to a more normal range, but are still sitting in that 66% to 67% range. So I'm not anticipating at this point price declines pending significant cost declines coming into us.

Richard Scott Herren: Yeah, thanks, Tim. So on a margin growth trade-off, we're always considering that. And we're very disciplined, though.

Richard Scott Herren: On the cost savings you can see where we are year to date, we've got.

Richard Scott Herren: And we think that gross margins are clearly a reflection of the value that your customers see in your technology and what you deliver. And if you look at a lot of our competitors, and you look at some of the market share, I mean, some of the gross margins that they have, it tells you that they're viewed more as a commodity. And I think that our customers see real value in what we deliver to them. So while we always look at margins vs. growth, we also are, or we're just disciplined across both on the AI front. Silicon One is a big play, clearly. We've delivered next-generation silicon to several of the cloud providers right now. We've got Ethernet running in three of the four big ones, and we'll use the same silicon in the enterprise data center over time.

Richard Scott Herren: If you just look at operating expenses for a minute.

Richard Scott Herren: Year to date operating expenses are modestly up.

Richard Scott Herren: After working our way through the restructuring that we discussed today for the full year, we think there'll be modestly down so I think thats, probably the right way to think about it is you are looking to build your model.

Speaker Change: Thank you Jim just because the next quarterly conference call, which will affect our fiscal year 2000, <unk> third quarter results will be on Wednesday May 15, 2024 at 130 PM Pacific time, 430 PM. Eastern time. This concludes today's call. If you have any further questions. Please feel free to contact Cisco Investor Relations and we thank you very much for joining the call today.

Speaker Change: Thank you for participating on today's conference call. If you would like to listen to the call in its entirety you may call 808, 765 to $5 eight for participants dialing from outside the U S. Please dial 2033693998 this.

Charles H. Robbins: We've got GPUs in our UCS platform, and so it's it's evolving, but we have you know, unlike the original cloud transition where we talked on this call several times about how we were not prepared for the infrastructure play in the cloud world, I think we are absolutely ready and well-equipped to succeed in this transition to AI. It will be a tailwind for us as we get into it over time. Thank you, Tim. Michelle, next question. Thank you.

Speaker Change: This concludes today's call you may disconnect at this time.

Aaron Christopher Rakers: Our next question comes from Aaron Rakers with Wells Fargo. Yeah, thanks for taking the question. I'll stick to one, just building on that last question.

Aaron Christopher Rakers: I know, over periods of time, you've talked a little bit about how large your web scale business is. Can you just remind us again about your presence in some of the web scale opportunities, either from a size and maybe, you know, maybe x the AI discussion, what kind of growth rates you're seeing, you know, particularly with those web scale customers right now? So our team measures.

Charles H. Robbins: What their use cases or franchises or however you want to think about it, there's specific areas within the infrastructure that we identify for each of the web scale players. And Scott, keep me honest, I want to say we were designed into 16 or 212121 of those. But I don't think that right now.

Charles H. Robbins: If you looked at the growth numbers, they wouldn't be reflective of what's going on because they're just digesting inventory right now. So they're not in a position where they need to order a lot because lead times have normalized so much. So I don't think that's a good indicator; it's not even relevant.

Charles H. Robbins: I think understanding those 21 use cases, and as I said earlier, they want dual source, and they want dual source all the way down to the silicon level. You know, in the traditional days with carriers, they wanted two vendors who would provide two different integrated systems, in this case. That may be the case with cloud, but they also look at silicon. They look at components. They're very deep into wanting to make sure that they have resiliency and optionality. Aaron, the only thing I'd add is, and we said it earlier, there's no question that over time, given the way we're positioned, both from a, you know, complete box, a white box, and a silicon standpoint, there's no question that AI is the tailwind. Thank you, Aaron and We only have time for one last question. Thank you, sir. James Fish with Piper Sandler.

Speaker Change: [music].

James Edward Fish: You may go ahead. Hey guys, thanks for squeezing me in here. God, based on a couple comments you made around gross margins, just wondering, with supply chains starting to go the other way and supply more readily available, could we see the price increases enacted in the past now have to be given back? And any sense as to how we should think about, you know, the annualized cost savings on these reductions, understanding there are people here and difficulty and, you know, what areas you guys expect to kind of reduce down and Thanks, guys.

Richard Scott Herren: Yeah, on the price declines, you got to remember, go back to why we put the price increases in to begin with. And that was really to offset the higher costs that we were seeing from many of our suppliers, as everyone was dealing with constraints. And you know, supply and demand is pretty straightforward.

Richard Scott Herren: What we haven't seen in the wake of this, some of the commodities, prices have come down; memory is a good example. But we haven't seen, broadly, cost decreases coming in from our providers at this point. And so with that, and you see that reflected in our gross margins, which have returned to a more normal range, but are still sitting in that. I'm not anticipating, at this point, price declines pending, you know, significant cost declines coming into us.

Richard Scott Herren: On cost savings, you know, we've got, if you just look at operating expenses for a minute, year-to-date operating expenses are modestly up. And after working our way through the restructuring that we discussed today, for the full year, we think they'll be modestly down. So I think that's probably the right way to think about it as you're looking to build. Thank you, Jim.

Sami Badri: This was the next quarterly conference call, which will affect our fiscal year 24 third quarter results, will be on Wednesday, May 15, 2024 at 1.30pm Pacific Time, 4.30pm Eastern Time. This concludes today's call. If you have any further questions, please feel free to contact Cisco Investor Relations. And we thank you very much for joining the call today. Thank you for participating in today's conference call. If you would like to listen to the call in its entirety, you may call 800-876-5258. For participants dialing from outside the U.S., please dial 203-369-3998.

Sami Badri: This concludes today's call. You may disconnect at this time. ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Welcome to Cisco's second quarter fiscal year 2024 financial results conference call. At the request of Cisco, this conference is being recorded. If you have any objections, you may disconnect. Now, I would like to introduce Sami Badri, head of investor relations. Sir, you may begin.

Sami Badri: Welcome everyone to Cisco's second quarter fiscal year 24 conference call. This is Sami Badri, Cisco's head of investor relations, and I'm joined by Chuck Robbins, our chairman and CEO, and Scott Heron, our CFO. By now, you should have seen our earnings press release. A corresponding webcast with slides, including supplemental information, will be available on our website in the investor relations section following the call. Income Statements, Full GAAP to Non-GAAP Reconciliation Information, Balance Sheets, Cash Flow Statements, and other financial information can also be found in the Financial Information section of our Investor Relations website.

Sami Badri: I will now turn it over to Chuck. Thanks, Sami, and thank you all for joining us today. We delivered a solid Q2 performance with revenue coming in at the high end of our guidance range. The strong operating leverage across our business drove our margins, which exceeded the high end of our expectations and allowed us to deliver better than anticipated earnings per share. In Q2, we once again returned a total of $2.8 billion in value through dividends and share repurchases.

Speaker Change: [music].

Speaker Change: Welcome to Cisco's second quarter fiscal year 2024 financial results conference call at the request of Cisco Today's conference is being recorded if you have any objections. You may disconnect now I would like to introduce Sami Badri head of Investor Relations. Sir you may begin.

Speaker Change: Everyone to Cisco's second quarter fiscal year 'twenty for a conference call. This is Sami Badri Cisco's head of Investor Relations and I'm joined by Chuck Robbins, Our chairman and CEO and Scott Herren our CFO.

Sami Badri: In terms of product orders unless stated otherwise all comparisons are made throughout this call will be on a year over year basis.

Sami Badri: Matters, we'll be discussing today include forward looking statements, including the guidance, we will be providing for the third quarter and full year of fiscal 2024.

Sami Badri: They are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC specifically the most recent report on forms 10-K, and 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward looking statements with respect to guidance. Please feel free to see the slides and press release that accompany this.

Sami Badri: Call report for further details.

Sami Badri: I will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure I will now turn it over to Chuck.

Charles H. Robbins: Now moving on to our performance in Q2. As I mentioned earlier, our performance in the quarter was broadly in line with, or better than, our Q2 expectations. Given the trust our customers place in us and the criticality of our technologies to the outcomes our customers are seeking, I am confident about the foundational strength of our portfolio and our future growth opportunities. Through our innovation, we deliver and enable our customers to deploy next-generation applications in a highly secure manner.

Charles H. Robbins: Overall, our Q2 results continued to advance our strategic business transformation around driving higher levels of software subscriptions and annualized recurring revenue or <unk>, both of which showed performance gains in the quarter.

Charles H. Robbins: Our pending acquisition of Splunk also further supports our transformation strategy, but fueling stronger growth expanding our portfolio of software based solutions and generating higher levels of a R. R. With roughly 4 billion in additional <unk> expected upon closing and will make us one of the largest software companies in the world.

Charles H. Robbins: Before turning to our performance in the quarter I'd like to start by commenting on the demand environment.

Charles H. Robbins: First in terms of the macro environment, we are seeing a greater degree of caution and scrutiny of deals given the high level of uncertainty as.

Charles H. Robbins: As we are hearing this from our customers.

Charles H. Robbins: Leading us to be more cautious with our forecast and expectations second.

Charles H. Robbins: As we discussed last quarter and subsequently saw another technology provider results customers have been taking time since the start of our fiscal 2024 to deploy the elevated levels of products shipped to them in recent quarters and this is taking longer than our initial expectations.

Charles H. Robbins: We also announced several new capabilities across our security, collaboration, and observability portfolios, leveraging AI throughout. We also continue to capitalize on the multi-billion dollar AI infrastructure opportunity. This quarter, we announced the next phase in our partnership with NVIDIA to offer enterprises simplified cloud-based and on-premises AI infrastructure that includes both networking hardware and software to support advanced AI workloads.

Charles H. Robbins: Given these factors we are adjusting our expenses and investments to reflect the current environment.

Charles H. Robbins: We continue to track Meraki, Activations, which are moving slightly faster in wireless and slightly slower in switching.

Charles H. Robbins: Looking at our wireless business as an example, we are encouraged by the number of orders of 1 million or more which increased approximately 50% sequentially in Q2. This.

Charles H. Robbins: This indicates that many wireless customers have finished absorbing what we've shipped to them and are preparing for larger deployments in the coming months.

Charles H. Robbins: Our team is also partnering closely with customers to assist with this heightened focus on deployments of Cisco equipment on hand.

Charles H. Robbins: Contributing to our services revenue increase year over year.

Charles H. Robbins: It's also worth noting that non hardware centric revenue in areas, such as security and collaboration increased and our observer ability offerings grew double digits year over year.

Charles H. Robbins: Finally, despite the near term challenges our win rates are stable and on a rolling four quarter basis, our market share remains steady in three of our four largest markets.

Charles H. Robbins: Now moving onto our performance in Q2.

Charles H. Robbins: As I mentioned earlier, our performance in the quarter was broadly in line with or better than our Q2 expectations give.

Charles H. Robbins: Given the trust our customers, placing us in the criticality of our technologies to the outcomes. Our customers are seeking I am confident about the foundational strength of our portfolio and our future growth opportunities.

Charles H. Robbins: In addition, we have now extended our AI-powered Thousand Eyes into Cisco Secure Access, joining past integrations with AppDynamics, Webex, Catalyst, and Meraki platforms. Thousand Eyes allows our customers to understand the digital experience of users, applications, and things through billions of daily measurements of the Internet and public SaaS, as well as thousands of enterprise customers creating best-in-class digital experiences for users. In observability, we introduce the Cisco digital experience monitoring application, providing deep insights into the performance of browser and mobile applications and efficient resolution of session-level issues. Our continued generative AI innovations build upon our existing platform capabilities, further enabling operations teams to focus on what matters most. Minimizing Tool Sprawl

Charles H. Robbins: With our innovation, we deliver and enable our customers to deploy next generation applications and a highly secure manner.

Charles H. Robbins: As part of this we help facilitate their growth through our products and services, so that when our customers adopt new technologies, we grow alongside them.

Charles H. Robbins: We also continue to capitalize on the multibillion dollar AI infrastructure opportunity.

This quarter, we announced the next phase in our partnership with Nvidia to offer enterprises simplified cloud based and on Prem AI infrastructure. This.

Charles H. Robbins: This includes both networking hardware and software to support advanced AI workloads.

Charles H. Robbins: Improving overall performance and delivering highly secure digital experiences. Going back to the pending Splunk acquisition, the combination of Splunk's complementary capabilities with ours in AI, security, and observability will create an end-to-end data platform to enhance our customers' digital resiliency. We are excited that together we will bring trusted innovation leadership, an outstanding go-to-market engine, and a world-class culture that will help our customers achieve their technology outcomes with innovative products and solutions. I would also like to provide a brief update on timing, while the closing of the acquisition of Splunk remains subject to regulatory approvals and other customary closing conditions. Given the positive progress to date on the required regulatory approvals, we now expect to close the transaction late in the first quarter or early in the second quarter of calendar year 2024, which is in our fiscal third quarter. Before I turn it over to Scott, let me summarize three key takeaways. First, we have reset our expectations for the second half of the year, given the cautious macro environment, our customers absorbing high levels of inventory, and ongoing weakness in service providers. Second, you can count on us to take a disciplined approach regardless of the environment.

We are clear beneficiaries of AI adoption and this partnership further demonstrates the central role we play in AI and the overall technology ecosystem.

Charles H. Robbins: And web scale, we continue to see momentum with three of the top four customers deploying our hyperscale Ethernet AI fabric, leveraging Cisco validated designs for AI infrastructure.

Charles H. Robbins: While there is tremendous opportunity ahead, we are still in the early stages of adoption of AI workloads.

Charles H. Robbins: In security.

Charles H. Robbins: We continue to execute against our product roadmap to deliver the industry's most comprehensive unified platform with end to end solutions.

Charles H. Robbins: AI is also becoming more pervasive across the Cisco security Cloud for example, our new AI assistant and secure access lets customers create security access policies using natural language prompts reducing errors and speeding up policy administration by 70%.

Charles H. Robbins: Our new security solutions like Xdr and secure access of ramping quickly after being launched this fall with now over 230, Cisco Xdr customers.

Charles H. Robbins: We remain committed to operating leverage, capital allocation, and expense management. Lastly, our portfolio continues to get stronger and stronger every day. While we have work in front of us, and despite the current environment, we remain confident in our long-term strategy. We are relentlessly focused on our commitment to driving long-term value for our shareholders and industry-leading innovation for our customers. I'll now turn it over to Scott to provide more detail on the quarter and our outlook. Thanks, Chuck.

Charles H. Robbins: Over the next six months, you can expect more meaningful announcements across the portfolio through our accelerated organic innovation and inorganic investments.

Charles H. Robbins: In addition, we have now extended our AI powered thousand eyes into Cisco secure access joining past integrations with App dynamics, Webex catalyst and Meraki platforms.

Charles H. Robbins: Thousand eyes allows our customers to understand the digital experience of users applications and things through billions of daily measurements of the Internet and.

And public SaaS as well as thousands of enterprise customers, creating best in class digital experiences for users.

Richard Scott Herren: And non-GAAP earnings per share was above the high end of our guidance range at $0.87, down 1%. Looking at our Q2 revenue in more detail. Total product revenue was $9.2 billion, down 9%, and service revenue was $3.6 billion, up 4%. Networking, our largest product category, was down 12%. We saw declines across switching, wireless, and routed optical networking, driven primarily by weakness in the enterprise and service provider and cloud market. However, security was up 3%, with our Zero Trust offering growing double digits. Collaboration was up 3%, driven by growth in collaboration devices and calling, partially offset by a decline in meetings. Observability was up 16%, driven by growth across the portfolio with continued strength in Thousand Eyes Network Services. As Chuck mentioned, Thousand Eyes helps monitor and assure digital experiences everywhere, on premises, the internet, and the cloud.

Charles H. Robbins: Our continued generative AI innovations build upon our existing platform capabilities further enabling operations teams to focus on what matters, most minimizing tool sprawl.

Charles H. Robbins: Improving overall performance and delivering highly secure digital experiences.

Going back to the pending Splunk acquisition. The combination of Splunk is complementary capabilities with ours and AI security and observe ability will create an end to end data platform to enhance our customers' digital resiliency.

We are excited that together, we will bring trusted innovation leadership and outstanding go to market engine and a world class culture that will help our customers achieve their technology outcomes with innovative products and solutions.

Speaker Change: I would also like to provide a brief update on timing.

Speaker Change: While the closing of the acquisition of Splunk remains subject to regulatory approvals and other customary closing conditions.

Speaker Change: Given the positive progress to date on the required regulatory approvals, we now expect to close the transaction late in the first quarter or early in the second quarter of calendar year, 2024, which is in our fiscal third quarter.

Speaker Change: Before I turn it over to Scott, Let me summarize three key takeaways.

Speaker Change: Second you can count on us to take a disciplined approach regardless of the environment, we remain committed to operating leverage capital allocation and expense management.

Speaker Change: Lastly, our portfolio continues to get stronger and stronger every day, while we have work in front of us and despite the current environment, we remain confident in our long term strategy.

Speaker Change: We are relentlessly focused on our commitment to driving long term value for our shareholders and industry, leading innovation for our customers.

Speaker Change: I'll now turn it over to Scott to provide more detail on the quarter and our outlook. Thanks Chuck.

Richard Scott Herren: Our Q2 results reflect solid execution again with strong margins and increasing operating leverage.

Richard Scott Herren: For the quarter total revenue was at the high end of our guidance range at $12 8 billion down 6% year over year.

Richard Scott Herren: non-GAAP net income was $3 5 billion down 3% and <unk>.

Richard Scott Herren: non-GAAP earnings per share was above the high end of our guidance range at 87 down 1%.

Richard Scott Herren: Looking at our Q2 revenue in more detail.

Richard Scott Herren: Looking at our geographic segments year over year, the Americas was down 10%, EMEA was down 8%, and APJC was down 27%. In our customer markets, service provider and cloud were down 40%, enterprise was down 6%, and public sector was down 5%. Backlog at the end of Q2 has now returned to normal levels. Total non-GAAP gross margin came in at 66.7%, up 280 basis points year over year and above the high end of our guidance range. Product gross margin was 65.2%, up 310 basis points. The improvement was driven primarily by lower freight and component costs and favorable product mix, partially offset by a negative impact on pricing.

Richard Scott Herren: Total product revenue was $9 2 billion down 9% and service revenue was $3 6 billion up 4%.

Richard Scott Herren: Security was up 3% with our zero trust offering growing double digits.

Richard Scott Herren: Collaboration was up 3% driven by growth in collaboration devices, and calling partially offset by a decline in meetings.

Richard Scott Herren: Observe ability was up 16% driven by growth across the portfolio with continued strength in thousand eyes network services.

Richard Scott Herren: As Chuck mentioned <unk> helps monitor and assure digital experience everywhere on premise internet and the cloud.

Richard Scott Herren: We continue to make progress on our transformation to more recurring revenue based offerings we.

Richard Scott Herren: We saw strong performance in our IRR of $24 7 billion, which increased 6% with product IRR growth of 9%.

Richard Scott Herren: Service Gross Margin was 70.5%, up 140 basis points; non-gap operating margin came in at 33%, up 50 basis points and exceeding the high end of our guidance range. Strong Non-Gap Gross Margin and Continued Cost Management drove the leverage. In addition, we are realigning our investments and expenses to reflect the current environment to help maximize long-term value for our shareholders. As part of our announced restructuring plan, we expect to impact approximately 5% of our global workforce with estimated pre-tax charges of approximately $800 million. Shifting to the balance sheet, we ended Q2 with total cash, cash equivalents, and investments of $25.7 billion.

Richard Scott Herren: Total software revenue was flat at $4 2 billion with software subscription revenue up 5%.

Richard Scott Herren: 88% of our software revenue was subscription based.

Richard Scott Herren: Total subscription revenue increased 6% to $6 4 billion, which now represents 50% of Cisco's total revenue an increase of six percentage points over last year.

Richard Scott Herren: <unk> was $35 7 billion up 12% year over year.

Product and service <unk>, both increased 12%.

Richard Scott Herren: And total short term RPI was $17 9 billion up 6%.

Richard Scott Herren: Two product orders declined 12% a significant improvement from Q1 as customers continue to work down product shipments from prior quarters.

Richard Scott Herren: Looking at our geographic segments year over year, the Americas was down 10% EMEA down, 8% and a P. J C was down 27% and.

Richard Scott Herren: Consistent with our expectations, operating cash flow was $800 million, driven in large part by the timing of federal tax payments and the higher annual payment of the TCJA transition tax. This quarter, we returned $2.8 billion to shareholders, comprised of $1.6 billion for our quarterly cash dividend and $1.3 billion of share repurchases. Year-to-date, we have returned $5.7 billion in value to shareholders, and we plan to continue our share repurchases at the current quarterly level throughout fiscal 2024. Increasing shareholder returns for greater operating leverage, maintaining a higher level of annual share repurchases, and growing our dividend are consistent with our capital allocation strategy. Given the confidence we have in our business today, we announced we're raising our dividend by one penny to 40 cents per quarter.

Richard Scott Herren: And our customer markets service provider and cloud was down 40% enterprise was down 6% and public sector was down 5%.

Richard Scott Herren: Backlog at the end of Q2 has now returned to normal levels.

Richard Scott Herren: Total non-GAAP gross margin came in at 66, 7% up 280 basis points year over year and above the high end of our guidance range.

Richard Scott Herren: Product gross margin was 65, 2% up 310 basis points.

The improvement was driven primarily by lower freight and component costs and favorable product mix, partially offset by negative impact on pricing.

Richard Scott Herren: Service gross margin was 75% up 140 basis points.

Richard Scott Herren: non-GAAP operating margin came in at 33% up 50 basis points and exceeding the high end of our guidance range.

<unk> non-GAAP gross margin and continued cost management drove the leverage.

Richard Scott Herren: Further we are realigning our investments and expenses to reflect the current environment to help maximize long term value for our shareholders as.

As part of our announced restructuring plan, we expect to impact approximately 5% of our global workforce with estimated pre tax charges of approximately $800 million.

Richard Scott Herren: Shifting to the balance sheet. We ended Q2 with total cash cash equivalents and investments of $25 7 billion.

Richard Scott Herren: This quarter, we returned $2 8 billion to shareholders comprised of $1 6 billion for our quarterly cash dividend and $1 3 billion of share repurchases.

Richard Scott Herren: Year to date, we have returned $5 7 billion in value to shareholders. We plan to continue our share repurchases at the current quarterly level throughout fiscal 2024.

Richard Scott Herren: Increasing shareholder returns through greater operating leverage maintaining a higher level of annual share repurchases and growing our dividend is consistent with our capital allocation strategy.

Richard Scott Herren: Given the confidence we have in our business today, we announced we are raising our dividend by one penny to 40 per quarter. This.

Richard Scott Herren: To summarize we executed well with continued strong margins and increased operating leverage as we help our customers complete record deployments in implementations.

Richard Scott Herren: We continue to progress our business model shift to more recurring revenue we have.

Richard Scott Herren: Strategically investing in innovation to capitalize on our growth opportunities and are committed to liberate to delivering long term shareholder value.

Richard Scott Herren: With regard to our proposed acquisition of Splunk, we continue to work through regulatory approvals and closing conditions and as Chuck mentioned, we're optimistic that it will close ahead of what we had originally anticipated.

Richard Scott Herren: We have not included any impact from the Splunk acquisition in our forward looking guidance.

Turning to our guidance as previously mentioned, we have reset our expectations for the second half of the year to account for the caution around macro uncertainty. The continued absorption by our customers of record levels of product shipments they receive from us and the weakness of our service provider market.

Richard Scott Herren: For Q3, our guidance is as follows we expect revenue to be in the range of $12 1 billion to $12 3 billion.

Richard Scott Herren: We anticipate the non-GAAP gross margin to be in the range of 66% to 67%.

non-GAAP operating margin is expected to be in the range of $33 five to 34, 5%.

Richard Scott Herren: non-GAAP earnings per share is expected to range from <unk> 84 to 86.

Richard Scott Herren: For fiscal year 'twenty four our guidance is as follows we expect revenue to be in the range of $51 5 billion to $52 5 billion.

Richard Scott Herren: non-GAAP earnings per share guidance is expected to range from $3 68 to.

Richard Scott Herren: The $3 74.

Richard Scott Herren: And both our Q3 and full year guidance, we're assuming a non-GAAP effective tax rate of 19%.

Richard Scott Herren: Sami, let's now move into the Q&A.

Sami Badri: Thank you Scott before we start the Q&A portion of the call I would like to remind analysts to ask one question and a single follow up question operator can we move to the first analysts in the queue.

Amit Jawaharlaz Daryanani: You may go ahead, sir. Good afternoon. I'll ask both my questions up front. You know, Chuck, when I think about the higher revenue guide for the full year, about 500 basis points versus 90 days ago, can you just tell us how much of that do you think is the digestion getting extended versus the macro versus the telco weakness? And then, as a follow-up, I'd love to just understand the Nvidia announcement you guys had. There's a bit of a perception that it's more about servers, less about networking. I would love for you to just flush that out and tell me what that means for Cisco. Thank you. Amit, thank you very much.

Sami Badri: Thank you, Sir Amit <unk> with Evercore you May go ahead Sir.

Amit: Yeah. Good afternoon, I'll ask both my questions upfront.

Amit: Chuck when I think about the lower revenue guide for the full year by about 500 basis points versus 90 days ago could you just put that how much of that do you think is the digestion getting extended versus the macro versus the telco weakness and then how do you sort of think about getting back to a positive revenue cadence organically and then as a follow up I'd love to understand and meet.

Speaker Change: Announcement equaled Scott, there's a bit of a perception that it's more about server is less about networking I'd love for you to his flesh that out what that global footprint. Thank you.

Speaker Change: Thank you very much.

Charles H. Robbins: So, obviously, with the lower guide, we talked about the feeling that there's some macro uncertainty. We talked to our teams in preparation for this, and they obviously submitted their forecasts, and what we really saw was that what they previously told us 90 days ago relative to the second half versus what they told us a couple weeks ago had changed materially, which means customers are pushing things out and putting a little more scrutiny on them. So that's the difference that we've seen as far as trying to break down what percentage comes from each of the three, including the digestion issue, as well as the telco and SP piece? I think it's pretty difficult to do, honestly.

Charles H. Robbins: So obviously with the lower guide we talked about the.

Speaker Change: The feeling that there is some macro uncertainty we talked to our teams in preparation for this and they obviously submitted their forecasts and what we really saw was.

Richard Scott Herren: What they previously told US 90 days ago relative to the second half versus what they told US a couple of weeks ago had changed materially which means customers are pushing things out and putting a little more scrutiny on them. So that's that's the difference that we've seen as.

Richard Scott Herren: As far as trying to breakdown.

Richard Scott Herren: What percentage comes from each of those three including the digestion issue as well as the the telco and Sps piece I think it's pretty difficult to do honestly.

Charles H. Robbins: However, I will say that we think that the consumption of the elevated inventory level should be – we should be through that by the end of our fiscal year. We think that the SP Telco and cable side of it, we're hopeful that in 2025 they will begin investing again. We originally anticipated that they would begin to invest in the second half of this year, and we no longer believe that to be true. And I think that, so I think the consumption issue and the SP thing, or the consumption issue is temporary through the end of the year. The macro thing is one that we're going to have to wait and see. And the SP telco, probably, similarly. And all of these things led us obviously to reset the second half of the year on the NVIDIA partnership. It is definitely Ethernet.

However, I will say that.

Richard Scott Herren: We think that the the consumption of the elevated inventory levels should be we should be through that by the end of our fiscal year.

Richard Scott Herren: We think that.

Richard Scott Herren: The SP telcos, the SP telco and cable side of it.

Richard Scott Herren: We're hopeful that in the 25, they will begin investing again, we originally had anticipated that they would begin to invest in the second half of this year and we no longer believe that to be true.

Richard Scott Herren: And I think that so I think the.

Richard Scott Herren: The consumption issue and the SP thing.

Richard Scott Herren: Are the consumption issue is temporary through the end of the year. The macro thing is one that we're going to have to wait and see and the SB telco probably similarly.

Richard Scott Herren: All of these things, let us obviously to reset the second half of the year.

Richard Scott Herren: On the Nvidia partnership.

Speaker Change: It is.

Speaker Change: It is definitely Ethernet I was in the meeting when we first talk.

Charles H. Robbins: I was in the meeting when we first talked about this with Jensen, and he agreed that we would include our Ethernet technology with their GPUs and create the stack. There will also be servers as well, and there will be multiple versions of this over time. But it will include our Ethernet technology when they're connecting multiple clusters. Thank you, Amit.

Speaker Change: <unk> talked about this with Janssen and he.

Speaker Change: Thank you Amit and Michelle can we have the next analyst.

Meta A. Marshall: Michelle, we have the next analyst. Thank you. Meta Marshall with Morgan Stanley. You may go ahead. Great, thanks.

Speaker Change: Meta Marshall with Morgan Stanley You May go ahead.

Meta A. Marshall: Great. Thanks.

Charles H. Robbins: Maybe, you know, you've mentioned service provider, but I guess, just getting a sense of whether you're seeing more weakness in data center or edge, or if it comes to kind of the five investment priorities that you had noted that enterprises had a couple of quarters ago, or any one of those areas still getting significantly prioritized versus not getting prioritized significantly. And then maybe, as a second question, you know, how are you seeing enterprises think about AI and think about where the budgets for AI are coming from? Any commentary would be helpful there.

Maybe you've mentioned service provider, but I guess.

Meta A. Marshall: Just getting a sense of whether youre seeing more weakness on data center or edge or if it comes to kind of the five investment priorities.

That you had noted that enterprises had a couple of quarters ago.

Meta A. Marshall: One of those areas still getting prioritized significantly.

Meta A. Marshall: Versus not getting prioritized significantly and then just maybe as a second question.

Meta A. Marshall: How are you seeing enterprises think about AI and.

Meta A. Marshall: And think about where the budgets for AI are coming from.

Speaker Change: Just any commentary would be helpful. There. Thanks.

David Vogt: Thanks. Yeah, thanks, Meta. So I would say that what we do see customers investing in is clearly cybersecurity. We see observability, as you saw, the 16% growth rate. We even saw positive collaboration this quarter, which was a good sign. They're still at various phases of dealing with this hybrid work situation. We had a very strong quarter with our devices and our video device businesses. We see customers investing in their customer experience through technologies like Contact Center.

Speaker Change: Thanks, Peter So I would say that what we do see customers investing in is clearly cyber security.

Speaker Change: We see.

Peter: Observe ability as you saw the 16% growth rate, we even saw collaboration positive.

This quarter, which was a good sign.

Peter: They are at various phases of still dealing with this hybrid work situation, we had a very strong quarter with our devices are video device businesses.

Peter: We see customers investing in their customer experience through technologies like contact center.

Peter: And.

Richard Scott Herren: And so we see a lot of that. We see customers continue to invest in their application rearchitecture, which leads to both observability opportunities as well as the re-architecture of their networks to deal with the traffic flows that we've been talking about for a couple of years. I think the real issue right now is that we ship so much networking equipment in our core business that that's where the challenge is, and they're just trying to get all that implemented right now. As it relates to the enterprise and how they're thinking about AI, what I will tell you is that over the last 90 days, we began to see the Pipeline for AI Use Cases in the Enterprise begin to emerge, and there's heavy work going on in financial services.

Peter: And so we see a lot of that we see customers continuing to invest in their application re architecture, which leads to.

Peter: Both observe ability opportunities as well as.

Peter: The re architecture of their networks to deal with the traffic flows that we've been talking about for a couple of years I think the real issue right. Now is that we've shipped so much networking in our core business that that's where the challenge is that theyre just trying to get to all of that implemented right now.

Peter: <unk>.

Peter: As it relates to the enterprise and how they are thinking about AI, what I would tell you is it.

Peter: Over the last 90 days, we began to see the dip.

Peter: The pipeline for AI use cases in the enterprise began to emerge and Theres a heavy.

Peter: Heavy work going on in financial services I would say it's early.

Richard Scott Herren: I would say it's early in what they're trying to think through, but we are seeing opportunities arise, and I think that there have been some comments. Not enough for me to translate this to a massive trend, but there were some comments from some of our field teams that they see customers holding back budget just to be ready to expend it on AI once they get their strategy fully baked. So that's about what I can tell you at this point. Thank you, Meta, and Michelle. Can we go to the next panel? Yes, David Vogt with UBS. You may go ahead.

Peter: And what they are trying to think through but we are seeing opportunities arise and.

Peter: And I think there have been some comments.

Peter: Not not enough for me to translate this to a massive trend, but there were some comments from some of our field teams that they see customers.

Peter: Holding budget back just to be ready to expand it on AI once they get their strategy fully baked. So that's about what I can tell you at this point.

Speaker Change: Thank you.

Speaker Change: Michelle can we go to the next analyst.

Michelle: Yes, David vote with UBS you May go ahead.

Richard Scott Herren: Great, thanks, guys, for taking my question. So maybe I just want to step back for a second, Chuck, and maybe Scott, also. You know, if I look at your guide for this year, I mean, we're basically back to fiscal 19 revenue levels. So I'm just trying to think about how your longer-term model works. In the context of, you know, that five to 7% guide that you laid out at the investor briefing a number of years ago, as sort of an investor as sort of customers digest product, you know, obviously, it would suggest that maybe there's some more share loss going on in the core networking portfolio, given some of the other parts of the business have grown. So just want to kind of try to get a sense for how you're thinking about the portfolio today, given we're kind of back to fiscal 19.

David Belt: Great. Thanks, guys for taking my question. So maybe just to step back for a second shop and maybe for Scott also.

David Belt: Looking at your guide for this year and we're basically back to fiscal 19 revenue levels. So I'm just trying to think about how your longer term model works in the context of that.

David Belt: That 5% to 7% guide that you laid out at the Investor briefing a number of years ago.

David Belt: As sort of investor as sort of customers Digest product.

David Belt: Obviously, it would suggest that maybe there's some more share loss going on in the core networking portfolio given some of the other parts of business is growing so I just wanted to try to get a sense for how youre thinking about the portfolio today, given we're kind of back to fiscal 19, and then from a profitability standpoint, obviously, you've done a tremendous job and I would imagine the cost cutting those along.

Richard Scott Herren: And then from a profitability standpoint, you know, obviously, you've done a tremendous job, and I would imagine cost cutting goes along those lines to keep margins higher. But is there an opportunity to use margin and maybe price going forward to take back some of the share if there's a disruption in the market by, you know, a potential strategic transaction in the marketplace today? Yeah, David, I'll start, and then Chuck, you can chime in on the share.

David Belt: Those lines to keep margins higher but inherent opportunity ease margin in need of price going forward to take back some of the share. If there is a disruption in the market by a potential strategic transaction in the marketplace today. Thanks.

Speaker Change: Yes, David I'll start and then Chuck you can you can chime in on share.

Richard Scott Herren: The way to think about the five to 7%. If you go back to when we gave that metric, you remember it was in 2021, actually before all of the supply chain volatility that we've seen. And since then, of course, we've seen the supply chain set in, which caused a spike in product orders. And then a subsequent big building up of our backlog; as we cleared the backlog, we saw a spike in revenue. And so it's been difficult to look at year-on-year comparisons, as you know, as all those dynamics were going on.

The way to think about the 5% to 7%. If you go back to when we gave that metric you remember it was in 2021 actually pre all of the supply chain.

Speaker Change: Volatility that we've seen and since then of course, we've seen.

Speaker Change: Fly chain set in which caused a spike in product orders.

Speaker Change: And then a subsequent big building up of our backlog as we cleared the backlog we saw a spike in revenue.

Speaker Change: Because of all the all the moving parts underneath the covers what underpins that 5% to 7%. When we gave it to you was that's the aggregated growth of the of the <unk>.

Speaker Change: Tam of the markets that we play in.

Speaker Change: And so at this point.

Speaker Change: Still see that as the longer term, where we're headed.

Speaker Change: Right, then we can get back to regular ordering and they needed to lap that right you need to go four quarters out to be able to compare it to a more normalized point. So I think that's the way you need to think about that longer term, but there is there is no change at this point, we will update the longer term model. After we finished the acquisition of Splunk and can give you better insight into what we look like as a combined company.

Charles H. Robbins: So I think that's the way you need to think about that longer term. But there's no change at this point; we will update the longer term model after we finish the acquisition of Splunk and can give you better insight into what we look like as a combined company, and David on the share loss. I think if you just look at the last published reports that came out after [inaudible] In our four largest markets, so if you take campus switching, you take wireless, and you take SP routing, we actually gain shares. So I don't know where the share loss thesis is coming from. When you look at data center switching, you will see it show up as a share loss, but it should not.

Speaker Change: Yes, David on the share loss I think if you look at the just look at the last published reports that came out after.

David Belt: Q3 calendar calendar Q3.

David Belt:

David Belt: The in our four largest markets. So if you take campus switching you take wireless and you take SP routing, we actually gained share. So I don't know where the share loss thesis is coming from.

David Belt: Look at data Center switching you will see it show up as a share loss.

David Belt: But to be.

Simon Matthew Leopold: We have to understand that one of our major competitors there reports, their web skill sales into data center switching, and we report our web scale sales into SP routing, so those turn into sort of apples and oranges categories, but the others, based on the last reports that were put out, we actually have gained share if you look at a rolling four quarter over even over the last three years. Thank you, David. Michelle, next analyst. Thank you. Simon Leopold with Raymond James.

David Belt: We have to understand that one of our major competitors their reports.

David Belt: Their web scale sale.

Speaker Change: Thank you David Michelle next analyst.

Simon Leopold with Raymond James You May go ahead Sir.

Charles H. Robbins: You may go ahead. Thanks for taking the question. I've got an easy one and a slightly harder one. I'll start with the easy one and then the harder one.

Simon Leopold: Thanks for taking the question Ive got it.

Simon Leopold: An easy one and a little bit harder one I'll start with the easy one.

Simon Leopold: The other.

Charles H. Robbins: It just looks like your order trajectory is getting somewhat better. So the orders this quarter were down 12%, not too bad. And I know you don't forecast orders, but maybe if you could talk about when you expect orders to turn positive again, given the comparison and the trend. The other question I wanted to see if you could discuss how you envision the AI clusters in terms of will the web scale operators choose multiple vendors in a single cluster, or will they designate maybe different data centers to different suppliers, or will they mix and match? How do you see the split playing out, particularly in the hyper-scale opportunity? And I really mean this more in the longer term, 25, 26, not currently when we're dominated by InfiniBand but when Ethernet starts taking more share. Thank you.

It just looks like Youre order trajectory its getting somewhat better so the orders this quarter down 12% not too bad.

Simon Leopold: And I know you don't forecast orders, but maybe if you can talk about when you expect orders could turn positive again.

Speaker Change: Given the comparison and the trend the other question I wanted to see if you could discuss how you envision the AI clusters in terms of will the web scale operators choose multiple vendors in a single cluster or will they designate.

Speaker Change: Maybe different data centers to different suppliers or will they mix and match how do you see the split playing out, particularly in the Hyperscale opportunity and I really mean, that's more longer term 'twenty five 'twenty six not currently when were dominated by infiniband, but when Ethernet starts taking.

Speaker Change: Sure. Thank you.

Charles H. Robbins: [inaudible] So on the order trajectory, I think what we clearly don't guide bookings, but what I would tell you is that even as our team modified their second half outlook, the second half will still be more favorable than the first half, so your assessment of sort of the trajectory is valid, and I'll leave it at that.

Speaker Change: Yes, Thanks Simon.

Speaker Change: So on the order trajectory.

Speaker Change: I think what we clearly don't guide bookings, but what I would tell you is that even.

Speaker Change: Even as our teams.

Speaker Change: Modified their second half outlook, the second half will still be more favorable than the first half. So your assessment of sort of the trajectory I think is valid.

Speaker Change:

Speaker Change: And so we're both actually the two of US are actually playing in the space today, and I would say today.

Speaker Change: They are completely homogenous clusters, and I think it's too early to tell whether there'll be some benefit over time for them to mix those.

Speaker Change: We will be mixed I, just don't think there's any benefit for them to do that.

Speaker Change: Thank you Simon Michelle next question.

Simon Leopold: Thank you Tal <unk> with Bank of America, you May go ahead.

Simon Leopold: <unk>.

Tal: I have two questions. The first one is security.

Speaker Change: The market is great.

Tal: We made two years ago, three years ago, and you spoke about new strategy in going to market, but it is the only growing 3%.

Tal Liani: What is happening there and what, and then maybe I'll Okay, Tal. So I think over the last few quarters, I was I've been pretty consistent that we thought in the second half of this fiscal year, we would start to see an acceleration of security. And I can give you some highlights where we are seeing some of that early green shoots. Some of the new innovation like XDR and secure access, multi-cloud defense, the suites, we're seeing a good pipeline built with those technologies. XDR We announced that in April of last year, we shipped it in August, and we have 230 customers, 230 plus customers on the platform today. And the important thing to remember is that it's a big platform game.

Speaker Change: What is happening there and what can you do to fix security here.

Speaker Change: From this market growth.

Speaker Change #100: And then maybe I'll ask my follow up.

Okay. Thanks, Tal so I think over the last few quarters that I've been pretty consistent that we thought the second half of this fiscal year, we would start to see an acceleration of security and I can give you. Some highlights where we are seeing some of that some green shoots early.

Speaker Change #100: Some of the new innovation like Xdr and secure access multi cloud defense. The suites are we're seeing.

Good pipeline build with those technologies.

Speaker Change #100: D R.

Speaker Change #100: We now have we announce that in April of last year, we shipped it in August.

Speaker Change #101: And we have 230 customers 230, plus customers on the platform today and the important thing to remember is that it's a big platform play.

Charles H. Robbins: And we actually typically see that as a six to nine month sales cycle. So to have 230 customers already is, I think, a statement on the value that our customers are seeing. That's going to be a real important integration point with Splunk, by the way. So that's what we see, we see, we feel good about the pipeline. From a demand perspective, just to give you some insight, in the Americas, demand was almost double digits this past quarter, which is the highest we've seen in a while. So I think we're seeing a lot of good indicators, and if you just watch over the next six to nine months, you're gonna see more and more innovation coming out. And I think you'll begin to believe and see the results around that same timeframe. Thank you, Tal, and we'll get to your other question at some point after the call. Michelle, can we move to the next speaker? Thank you. Sami Chatterjee with JP Morgan.

Speaker Change #101: And.

Speaker Change #101: We actually typically see that as a six to nine months sales cycle. So to have 230 customers already I think as a statement on the the value that our customers are seeing that is going to be a real.

Speaker Change #101: Important integration point with Splunk by the way.

Speaker Change #101: So that's that we see we see we feel good about the pipeline.

Speaker Change #101: From a demand perspective, just to give you some insight the Americas. The demand was almost double digits. This past quarter, which is the highest we've seen in a while so I think we're seeing a lot of good indicators.

Speaker Change #101: Indicators.

Speaker Change #101: And if you just watch over the next six to nine months, you're going to see more and more innovation that comes out.

Speaker Change #101: And I think you'll you'll begin to believe and see the results around that same timeframe.

Speaker Change #102: Thank you Tal and we'll get to your other question at some point after the call Michelle can move to the next speaker.

Speaker Change #102: Sami <unk> with Jpmorgan you May go ahead Sir.

Samik Chatterjee: You may go ahead. Hi, thanks. Chuck, I'm going to, for my first question, ask you to go back. The Drivers of Demand that you're seeing here. We walked away from the call last time with a sense of optimism about a sharp rebound when you see the inventory digestion complete. But I guess what I'm hearing from you today is, even as that inventory digestion ends in fiscal 24, you're seeing a bit more of a macro impact on your customer demand. And are your expectations still sort of intact in terms of thinking about a more sharp rebound as you, 25, if you can share what you're seeing from customers there? And for my follow-up question, the NVIDIA partnership, how should we think about the impact of that on your AI auto target of 1 billion?

Oh, hi, Thanks for taking my question Chuck I'm going to first question and ask you to go back to some of the drivers of demand that you see in Q.

Sami Badri: Walked away from the call last time.

Sensing a sense of optimism about the sharp rebound renewals TV inventory digestion complete, but I guess, what I'm hearing from you today is even as that inventory digestion and in fiscal 'twenty forward Youre seeing a bit more of a macro impact on your customer demand and your expectations still sort of intact in terms of thinking about a more shop.

Sami Badri: <unk> rebound as you go into fiscal 'twenty five if you could share what you're seeing from customers that and for my follow up.

Sami Badri: The Nvidia partnership how should we think about the impact of that on your own AI auto target of $1 billion or is it really most of that partnership with realizes beyond that target window target timeframe. Thank you.

Samik Chatterjee: Or is it really most of that partnership materializes beyond that sort of target window, target market? Thanks. I would say on the thing that's changed from last quarter is that we do just see a little more caution with our customers. I don't want to overreact and say that it's a massive shift, but we definitely saw more caution. We took talked with our sales leaders ahead of the call, and they indicated that we asked them point blank, was there more caution or less or the same caution from the prior quarter, and we heard more, a little bit more. And then we saw the push out of the forecast.

Speaker Change #103: Thanks, I would say on the.

Speaker Change #103: The thing that's changed from last quarter is.

Speaker Change #104: That we do just see a little more caution with our customers I don't want to over rotate and say that it's a massive shift, but we definitely saw more caution.

Speaker Change #105: We took we talked with our sales leaders ahead of the call and they indicate we asked them point blank was there more caution or less or the same caution from the prior quarter end and we heard more little bit more and then we saw the push out of the forecast. So that just tells us that there there is a little bit more in the system.

Charles H. Robbins: So that just tells us that there is a little bit more in the system. So therefore, I think we need a couple quarters to see it play out before we can declare what's going to happen in fiscal 25. On the NVIDIA discussion, I have a couple of comments.

So therefore, I think we need a couple of quarters to see it play out before we can declare what's going to happen in fiscal 'twenty five.

Speaker Change #105: On the Nvidia.

Speaker Change #105: Discussion.

Speaker Change #105: A couple of comments, we talked about the $1 billion of orders, which I know someone's going to ask me about at some point and what I would say is that.

Charles H. Robbins: We talked about the billion dollars of orders, which I know someone's going to ask me about at some point. And what I would say is that, in the last 90 days, our pipeline of AI opportunities continued to grow. The pipeline is now almost three times the size. That particular number that we gave last time, which was more orders than we see in 25, the total pipeline is now about three times that, roughly three times that, and I would say that virtually none of that is yet associated with the NVIDIA partnership yet. It's all independent of that.

In the last 90 days our pipeline of <unk>.

Speaker Change #105: AI opportunities continue to grow the pipeline is now almost three times.

Speaker Change #105: Is anything associated with the Nvidia partnership yet.

Speaker Change #105: All independent of that.

Samik Chatterjee: Thank you, Samik. Michelle, next question. Ben Reitzes with Milius Research, you may go ahead. Hey, thanks for the question, guys. Hey, Chuck.

Speaker Change #106: Thank you Simeon Michelle next question please.

Speaker Change #106: Ben Reitzes with Melius Research you May go ahead.

Ben Reitzes: Hey, Thanks for the question guys, Hey, Chuck Hey, Scott.

Benjamin Alexander Reitzes: Hey Scott, I wanted to ask about the HP Juniper deal. Are you seeing any uncertainty in the market near term? And how do you think that will help you long term?

Ben Reitzes: Wanted to ask about the HP Juniper deal are you seeing any uncertainty in the market near term and how do you think that.

Ben Reitzes: <unk> long term and.

Charles H. Robbins: And, Chuck, if you don't mind, just with regard to that last AI comment, you're one of your competitors, obviously, is expecting quite a big pickup next year, next calendar year. Do you feel like that AI rebillion in the pipeline or so kicks in next year, next calendar year? Or what's your timing on that? Thanks so much.

Ben Reitzes: If you Chuck.

Ben Reitzes: Chuck If you don't mind, just with regard to that last AI comment.

Ben Reitzes:

Ben Reitzes: Your one of your competitors, obviously, he is expecting quite a big tick up next year next calendar year.

Speaker Change #107: Do you feel like that AI 3 billion in pipeline are so kicks in next year next calendar year or what's your timing on that thanks. So much.

Charles H. Robbins: Thanks, Ben. So I would say on the HP Juniper deal. You know, the one area where they have meaningful overlap is in wireless, and I don't know if there's any connection to the fact that we had a 50% increase in million-dollar-plus wireless deals sequentially. So it's hard to say, but there is a lot of noise in the system or in the industry about what they do there, but I can't say specifically that any customers have talked to me about it. To be honest, I think it's a little early for customers to be expressing that concern. They may be asking them directly, but they're not talking to us.

Speaker Change #108: Thanks Ben.

Speaker Change #108: So I would say on the HP juniper deal.

Speaker Change #108: The one area, where they have meaningful overlap is in wireless and I don't know if there's any connection to the fact that we had a 50% increase in million dollar plus wireless deals sequentially.

Speaker Change #108: So it's hard to say, but I mean, there is a lot of noise in the system.

Speaker Change #108: In the industry about what they do there, but I can't say specifically that any.

Speaker Change #108: Customers have talked to me about it to be honest.

Speaker Change #108: So I think we're I think it's a little early for them to.

Speaker Change #108: For the customers to be expressing that concern that they may be asking them directly but they are not talking to us.

Charles H. Robbins: On the timing, yeah, I think we said fiscal 25, which starts in August of this year, and I think you probably should assume most of that's probably in the second half, I would guess, but we'll see how things play out. I think customers are going to move as fast as they possibly can, but we're still in the early strategy and planning stages right now on most of it. The pipeline stuff is well-defined use cases that are already in place with certain customers, and we're actually just working through the opportunities.

Speaker Change #108: On the timing, yes, I think I think.

Speaker Change #108: We said fiscal 'twenty, five which starts in August of this year and I think you probably should assume most of that is probably in the second half hour guests, but we'll see how that how things play out I think customers are going to move as fast as they possibly can but we're still in the early strategy and planning stages right now on the on most of it.

Speaker Change #108: Pipeline stuff are well defined use cases that are already.

Speaker Change #108: That are already in place with certain customers and we're actually just working through the opportunities. Yes, but then our expectation is the majority of that $1 billion in orders will turn into revenue in our fiscal 'twenty five.

Charles H. Robbins: Yeah, but Ben, our expectation is the majority of that billion dollars in orders will turn into revenue in our fiscal year 25. Thank you, Ben. Michelle, next question. [inaudible] Hey, thanks so much. I'll keep it to one and one follow up. So the main question is just around inventory digestion. Is that it?

Speaker Change #109: Clear thank.

Speaker Change #110: Thank you Ben Michelle next question.

Speaker Change #110: Matt Mcnulty with Deutsche Bank, you May go ahead Sir.

Matt Mcnulty: Hey, thanks, so much and I'll keep it to one and one follow up so quite main question just around inventory digestion.

Q2 2024 Cisco Systems Inc Earnings Call

Request a DemoDemo

CSCO

Cisco Systems

Earnings