Cisco Systems Inc Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : I know this might be a difficult one to answer, and I appreciate the comment on tariffs, but maybe the bigger issue around the federal government is all the noise around the DOGE. And so I'd love if you could drill down on your federal exposure and the scenarios you're envisioning if there are major layoffs from the US government employment. And then I've got a quick follow-up.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Just follow-up, please. Yeah. So there's been increasing noise around the technology known as co-packaged optics. And given Cisco's, let's say, ingredients having optics, vertical integration, switching, routing, just wondering how you're thinking about that in your longer-term strategy.

Question: Meta Marshall - Morgan Stanley & Co. LLC - Analyst : Chuck, maybe if I could ask to start just what you are seeing from customers on propensity to spend. Clearly, a very good quarter, but just as we've entered into the year and more resolution on administration but maybe less resolution on directionality, just what you're hearing from customers. And then second, just on -- clearly, you're seeing a lot of strength on the data center side and spoke to seeing some of that on the campus side. But just how are you seeing kind of strength broaden out to the campus portfolio? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 9:30PM, CSCO.OQ - Q2 2025 Cisco Systems Inc Earnings Call

Question: Ben Reitzes - Melius Research - Analyst : Congrats on the quarter. It's good to see you guys with the momentum. Chuck, we've got a lot of questions very recently about a new switch that you just put out, the 9300 Nexus. And this programmable switch market looks like there's a lot of strong prospects there. So just wondering if you could talk a little bit more about that product and maybe why you went with AMD for the product and what that means for your -- versus your NVIDIA products. And my follow-up just is with regard to the overall comment of just overall demand just sounds so much better than a few quarters ago. I just wanted some -- the view that, do you still think people are getting ready for AI? Or -- yes, I don't know if I heard that from you this time that you think -- you were thinking in the last two quarters, people were getting ready for AI and it picked up. And this just sounded like a little more firm, but I was just wondering for a little more color on that. Hopefully, that didn't run on too long, Sami, but I'll pass it back to you.

Question: Matthew Niknam - Deutsche Bank - Analyst : Just maybe to dovetail on the prior question. You talked -- talk about enterprises investing a little bit more in AI. I'm just wondering, as they've come into the new calendar what you're seeing in hearing specifically from enterprise customers on the AI front? And how meaningful it is for your business today? And then just as a follow-up, maybe for Scott. You did about 68.7% on a gross margin front this past quarter. I think the guide implies a step down to between 67% to 68%. I'm wondering maybe what informs that view?

Question: Tal Liani - BofA Securities - Analyst : Great quarter, but I have a question about maybe the weaker parts. If my math is right, and I'm not sure it's right, so I need clarification, Splunk was down 11% this quarter year-over-year. Maybe my numbers are totally wrong, so if you can clarify what's happening with Splunk and give us an update on the trends. And the second question is security and observability. It's supposed to accelerate -- it accelerated last quarter. Can you talk about the trends this quarter and kind of the good parts and the bad parts of the growth?

Question: Michael Fisher - Evercore ISI Institutional Equities - Analyst : This is Michael Fisher on for Amit. Just a quick question on the $700 million AI orders so far this year. Are these mainly switching and optical wins? Or are you seeing wins in some other products? And then just curious if you're expecting any of these -- you've seen some very strong AI orders. Are we expecting it to start converting into revenue this fiscal year? Or is that more of a fiscal '26 thing?

Question: Jim Fish - Piper Sandler & Co. - Analyst : Working off a few things you guys just have talked about here, can you just first give us an update as to the actual penetration of the 6,500 large customers you guys expected between Cisco and Splunk to jointly go after and any further bundling plans you have but -- beyond what you just announced? And then secondly, to the last question, what are you guys seeing from where you're winning within the data center between the Silicon One approach versus sort of the systems approach with your AI wins? Would love additional color there.

Question: David Vogt - UBS Securities LLC - Analyst : So I'll give you both obviously at the same time. So I'm just trying to square, Chuck, your comments about the strength that you're seeing across the business because it looks like ex Splunk enterprise orders maybe decelerated a little bit sequentially and the strength in -- I guess it looks like the Americas was mostly SP and cloud. And then the second question I have is maybe longer term, there's been a high number or a large number of project announcements over the last couple of weeks with some pretty big announcements from maybe the white-box ODM space with some big wins as well. So maybe anything you can touch on from a competitive perspective on how you're thinking about maybe these bigger projects that have been announced, maybe the risks out there from some of these other alternatives like DeepSeek and then some of these wins that have been announced by some of the ODM market and how you're thinking about the landscape.

Question: Antoine Chkaiban - New Street Research - Analyst : So I'd like to follow up on the question regarding traction from enterprise customers in AI. Could you provide some additional color on where you are seeing Ethernet gain momentum the enterprise segment, what kind of cluster size, what use cases, which verticals? And then as a follow-up, I'd love to hear your perspective on what you're hearing from these customers in terms of data center space and, in particular, access to power as potentially being a bottleneck to roll out infrastructure this year.

Question: Aaron Rakers - Wells Fargo Securities LLC - Analyst : Congrats on the quarter. I'll stick with the AI theme first, and then I'll throw out my quick follow-up. On the AI side, I think in the prepared comments, you had mentioned that your 51.2T silicon will come out, I think it was April time frame. As you think about that 50% of your business on the AI orders being tied to switch and Silicon One silicon, how -- would you say that is the point of inflection, like the majority of your AI wins are tied to that 51.2T silicon? Or just kind of trying to understand kind of the opening up of this monetization opportunity. And then as a follow-up, I'm just curious like on the campus side, just help us appreciate maybe the WiFi 7 upgrade cycle that you're starting to see or how you're thinking about that.

Question: Karl Ackerman - BNP Paribas Securities Corp. - Analyst : Within enterprise networking, I think a couple of quarters ago, customer lead times bottom out at just a few weeks. Is the greater visibility and support of your April quarter outlook from enterprises and even telco operators coming from just a return to normal order patterns? Or are lead times extending out beyond a quarter across those customers as you begin to introduce AI PODs and Hypershield and perhaps some on-prem service offerings in addition to that?

Question: Adrienne Colby - Citigroup Global Markets, Inc. - Analyst : It's Adrienne Colby for Atif. Earlier this week, you announced some offerings geared towards traditional service providers. I was just wondering if you could help us size this customer segment for Cisco and understand where these customers are in terms of their embrace of AI? What are some of the key issues that Cisco is just helping them address?