Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Strong demand growth in the Nexus portfolio and data center switching, with significant year-over-year growth in key segments.
• Innovation in product development, particularly in security and networking, has been at an unprecedented pace over the last 12 to 18 months.
• AI-driven demand is contributing to increased orders, with significant investments in AI infrastructure by enterprises and telcos.
• Successful integration and performance of Splunk, with double-digit growth and profitability ahead of expectations.
• Continued strength in the telco segment, driven by network upgrades in anticipation of AI-driven demand.

Negative Points

• Gross margin guidance indicates a potential decline due to proposed tariffs, impacting cost structures.
• Concerns over potential impacts of tariffs on demand, although no current evidence of demand pull-forward.
• Enterprise orders showed slower growth compared to previous quarters, raising concerns about demand consistency.
• Security and observability segments are still ramping up, with some products needing more time to gain traction.
• Competitive pressures from white box ODMs and other alternatives in the market could pose risks to Cisco's market share.

Q & A Highlights

• Warning! GuruFocus has detected 10 Warning Signs with CSCO.

Q: Can you provide more details about the new 9,300 Nexus switch and why AMD was chosen over NVIDIA for this product? Also, is the demand for AI still a significant driver for your business? A: The 9,300 Nexus switch is a breakthrough product that integrates security deeply into the network, allowing for network services to run at the speed of the ASICs. The choice of AMD was based on an analysis that deemed it the best solution. Demand for AI remains a significant driver, with many customers preparing their networks for AI-driven services. (Charles Robbins, CEO)

Q: How are enterprise customers approaching AI investments, and what impact does this have on Cisco's business? A: Enterprises are in the early stages of AI investment, focusing on identifying use cases. We are seeing spending on AI-driven infrastructure, and we believe the opportunity in leveraging proprietary data for AI is substantial. Our innovations like AI pods and Hypershield are positioned to support these developments. (Charles Robbins, CEO)

Q: What factors are influencing the projected decline in gross margin for the next quarter? A: The projected decline in gross margin to 67%-68% is primarily due to the anticipated costs of proposed tariffs, including a 10% increase in China and 25% in Canada and Mexico. We have built these costs into our guidance to protect against potential impacts. (Richard Herren, CFO)

Q: Are you seeing any changes in demand due to tariffs, and how are hyperscaler deployments progressing? A: We haven't observed any pull-forward in demand due to tariffs. The environment is fluid, and we are prepared to mitigate impacts through supply chain adjustments. Hyperscaler deployments are progressing rapidly, with some customers increasing their targets significantly. (Richard Herren, CFO; Charles Robbins, CEO)

Q: Can you provide an update on the performance of Splunk and the trends in security and observability? A: Splunk is performing well, growing double digits and ahead of expectations. The perceived decline is due to the timing of fiscal quarters. In security, we are seeing growth in demand, with new innovations like Cisco Security and XDR gaining traction among enterprise users. (Richard Herren, CFO; Charles Robbins, CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.