Q4 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Cisco is experiencing strong demand and returning to normal buying patterns, with product orders growing 14% year-over-year (6% excluding Splunk), indicating that the inventory digestion period is largely behind them. This strong demand is balanced across geographies, customer segments, and product lines. , , ,
- Significant growth in AI-related business, having crossed $1 billion in AI orders with webscale customers and expecting an additional $1 billion of AI product orders in fiscal year '25. Enterprises are upgrading their infrastructure in preparation for AI applications, positioning Cisco well to capture this opportunity. , ,
- Success with large platform deals and expansion in the security portfolio, particularly among large enterprise and public sector customers. Cisco is executing nine-figure deals that include multiple technology platforms, with the security portfolio being a key area of growth. , ,
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AI-Driven Customer Demand
Q: How is AI influencing customer demand and infrastructure upgrades?
A: Customers are upgrading their infrastructure in preparation for AI, sometimes reallocating AI budgets to modernize their networks. Enterprises are updating data center and core network infrastructures to be ready for smaller training models or inference workloads. This has led to balanced demand across the portfolio, with double-digit growth in security and collaboration, and high single-digit growth in enterprise switching and routing. -
Workforce Reduction and Guidance
Q: What's the impact of the 7% workforce reduction on fiscal 2025 guidance?
A: The layoffs are fully embedded in the fiscal 2025 guidance. The action is about reallocating resources—not cost savings—to pivot hundreds of millions of dollars into AI, cloud, and cybersecurity. It's more about finding efficiencies and investing in fast-growing areas than pursuing cost reductions. -
$1 Billion AI Orders
Q: Can you elaborate on the $1 billion AI orders and expectations for FY 2025?
A: They have crossed $1 billion in AI orders to date in the webscale space and are on track for another $1 billion in fiscal 2025. The orders are primarily back-end infrastructure, including Ethernet and optics, competing against traditional players. One of the largest customers is releasing orders from design wins, indicating execution is proceeding as planned. -
Splunk Performance and Integration
Q: How is Splunk performing, and what's its impact on guidance?
A: Splunk is progressing in line with expectations, with Annual Recurring Revenue (ARR) growing in double digits. Integration is leading to cross-sell opportunities, with over ten deals closed involving both sales forces. The impact of Splunk is fully built into the fiscal 2025 guidance, though specifying revenue allocations between Cisco and Splunk will become harder due to product integrations. -
Fiscal 2025 Revenue Outlook
Q: Why is revenue growth guidance only around 3% despite improving demand?
A: There's a tough comparison due to significant backlog shipments in Q1 of fiscal 2024, around $4 billion, which won't repeat. This creates a headwind impacting growth rates for both Q1 and the full year. Excluding backlog and Splunk, core business growth is in the same range as the long-term growth rate. -
Cloud Order Growth and Hyperscalers
Q: What's driving cloud order growth, and how are hyperscalers contributing?
A: Cloud orders grew by 2%, a combination of service provider and cloud. Hyperscalers saw significant double-digit growth in the second half and Q4, indicating that the prior digestion period is over. They expect normal buying behavior from hyperscalers in coming quarters. -
Platform Deals and Cross-Portfolio Sales
Q: How are platform deals influencing sales and customer engagement?
A: Large enterprise and public sector customers are engaging in platform deals to refresh infrastructure in preparation for AI workloads. Security is a significant area of expansion within these deals. The number of $1 million transactions in wireless alone was up 20% year-over-year. -
Pricing Environment and Margins
Q: How is pricing impacting revenue and margins?
A: Pricing has returned to normal patterns, with expected impacts similar to historical ranges of 0.5% to 1.5% per quarter. The prior period had headwinds due to pricing adjustments, but the environment has stabilized. -
Organizational Integration
Q: What are the motivations behind integrating networking, security, and collaboration?
A: To deliver a platform strategy and leverage cross-integration as a competitive differentiation, especially in rapidly moving AI markets. A single leader overseeing these areas enhances innovation and execution. -
Sales Efforts and Compensation
Q: Are there changes to sales efforts or compensation structures?
A: There is a focus on cross-sell incentives for Splunk within the Cisco sales force and encouraging security sellers. Emphasis is on simplicity, increasing frontline quota-carrying reps, and doubling down on core networking and infrastructure.