Cisco Systems Inc Q4 2024 Earnings Call Transcript

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

Question: Meta Marshall - Morgan Stanley & Co. LLC - Analyst : Great. Thanks so much. Chuck, I just wanted to maybe start with you in terms of what you're seeing in terms of budget prioritization from customers. Clearly, they're coming out of a digestion period. But just any sense of how they're balancing different enterprise or initiatives, particularly trying to balance AI initiatives. And then maybe second, just for Scott, is the full risk embedded in the fiscal '25 guidance? Just any clarification. Thanks.

Question: Meta Marshall - Morgan Stanley & Co. LLC - Analyst : Just the layoffs that were announced. Just whether that is fully embedded -- the savings from the 7% cut are embedded in the fiscal '25 guidance. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 14, 2024 / 8:30PM, CSCO.OQ - Q4 2024 Cisco Systems Inc Earnings Call

Question: Tal Liani - BofA Global Research (US) - Analyst : Hi, guys. The last question a little bit stole my thunder but I want to ask it anyway. On one hand, there is always a correlation between business cycles and restructuring. And here, you see a company that is improving on all fronts with orders growing and still you're announcing a major 7% restructuring. Is there anything in the environment that makes you more cautious? Is there anything that drives the timing of this restructuring ahead of what is expected to be a good year? So I'm wondering what can we learn from your view on the environment given the timing of restructuring? (multiple speakers) I'll just ask my second question together. It's a quick one. On security, great performance, finally improving. Was there any implication of what we've seen with CrowdStrike? Have you seen any change in purchasing behavior or any different dynamics among customers because of what happened with CrowdStrike?

Question: Samik Chatterjee - J.P. Morgan Securities LLC - Analyst : Hi, thanks for taking my question. And before I ask the question, congratulations to Jeetu on the expanded role as well. Maybe just starting off with the AI orders. Chuck, I think you mentioned you already cumulatively crossed $1 billion and are on track for the $1 billion next year. Maybe if you can give us some sense on what's the current sort of run rate that you're hitting relative to the $1 billion target you have for next year? And as you sort of get more visibility in terms of some of these deployments, how are you thinking about the order or signing of the orders translating into revenue? And I have a follow-up. Thank you.

Question: Samik Chatterjee - J.P. Morgan Securities LLC - Analyst : Okay. On the follow-up, I was just really going to more ask about what's embedded in terms of the guide relative to the Splunk growth versus the core business. And if we are sort of calculating it right, it looks like Splunk's growth was about 5% in the quarter. It looks a bit more subdued than the double-digit growth I think everyone was expecting. So any guide -- any sort of thoughts on why it was a bit more subdued if I'm doing the math right? And how to think about sort of what's embedded in the guide for fiscal '25? Thank you.

Question: George Notter - Jefferies LLC - Analyst : I wanted to ask about putting the organization together, networking security, collaboration. Can you talk a bit about what's driving that integration? I assume you're going to talk about the need for products to be integrated, especially as we leverage AI, leverage big data sets. But can you walk through kind of the precise motivations driving it?

Question: Amit Daryanani - Evercore ISI Institutional Equities - Analyst : Good afternoon. Thanks for taking my question. I guess maybe to start with, Chuck, your commentary around customer demand patterns getting back to normal, the orders and positive growth, all sounds really good. Maybe you could just contrast that and help us frame that versus your guidance for overall revenue being up 3%, inclusive of Splunk. There's obviously the sphere that Cisco's losing shares at. Maybe you can just talk about how to think about your revenue growth, what headwinds do you have for maybe backlog normalization that should be factored into the 3%, 3.5% revenue guide? That would be really helpful to sort of understand. And then perhaps this is a follow-up, Scott. Can you just quantify what sort of cost savings are you expecting from this reduction program? I realize none of this will flow to the bottom line. It sounds like you want to invest it back in the business. But just to frame it up, what sort of savings on a growth level maybe you expect from these cost reduction initiatives? Thank you.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Great. Thank you for taking the question. I'm interested in maybe unpacking a little bit of the $1 billion of incremental AI orders you talked about for fiscal '25. And what I'm sort of trying to understand is, are you looking at this as sort of more of the same, meaning very similar in the customer mix and product mix of the first $1 billion? Or are we expecting the beginning of maybe enterprise adoption for inferencing? Or what's the nature of that incremental $1 billion? And then my follow-up is quick and probably one that might be a little bit trickier to answer, but what are you budgeting for fiscal '25 OpEx? I think we're all trying to get to that one way or another. Thank you.

Question: Matthew Niknam - Deutsche Bank Securities Inc. - Analyst : Hey, guys. Thanks so much for taking the question. On the point around the platform approach, maybe Chuck, if you can speak to where the platform approach is resonating more across your different customer sets -- within enterprise, SP, and public sector. And how much of these REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 14, 2024 / 8:30PM, CSCO.OQ - Q4 2024 Cisco Systems Inc Earnings Call purchasing decisions -- primarily around buying networking and security adjacent to one another, how much of this has actually being done in unison today? And where do you think that goes over time? Thank you.

Question: Ittai Kidron - Oppenheimer & Co. Inc. - Analyst : Thanks, guys. A couple of questions for me. First, Chuck, in your prepared remarks, in the slides, for example, of $100 million platform deals -- multiple platforms, I guess, within each single customer. Maybe can you talk about where is -- all of these customers were naturally big Cisco customers before these renewals and deals. So I guess the question is, where is the incremental value? In what product areas do you see yourself really gaining more from a footprint when you're coming with these platform deals? And the second question relates to the cloud order growth. Only two points, if I'm getting that right, not all that impressive this quarter. Maybe you can unpack that a little bit more. Thank you.

Question: James Fish - Piper Sandler & Co. - Analyst : Hey, guys. Thanks for the questions here. You guys are reducing 7% of the workforce. But based on your comments, Scott, it sounds as though that is kind of the gross number. So is there a way to think about sort of that net number by year-end and how many employees are actually affected? And as a follow-up, obviously, Gary has been now in his role for a bit longer and you guys are starting a new fiscal year here. So how are you guys thinking about changes to the sales efforts or compensation structures with this kind of ongoing restructuring, and meanwhile, it kind of pushed more towards a platform sale? Thanks, guys.

Question: Ben Reitzes - Melius Research LLC - Analyst : Hey, guys, thanks for the question. I wanted to ask you, Chuck, a little bit more about the getting ready for AI, the uptick in orders where you see folks getting ready. Did you mean like some of the wireless orders where they're anticipating using apps, or did you mean that they're anticipating doing training on top of some LLMs? I just wanted a little more -- if you had any insight as to what they're really using it for, and which area of your portfolio that you're really seeing it in and if you're getting a sense like for what they're really prepping for. And then my follow-up is just with regard to NVIDIA. So a follow-up there is -- with regard to your orders, it sounds like enterprise is small with regard to the AI orders. But wondering if you're seeing any interest in the NVIDIA partnership yet. Thanks.

Question: Aaron Rakers - Wells Fargo Securities, LLC - Analyst : Yeah. Thanks for taking the question. Sticking on the AI theme, as we think about this $1 billion of orders, I think last quarter, you talked about line of sight into the $1 billion going into fiscal '25. I was curious if you can unpack that a little bit in terms of are these back-end network deployment, competing against Arista, internal switching offerings from the cloud guys? And is it switching? Is it Silicon One, full switch? Is there any kind of granularity you can give within that $1 billion orders? And then I'll spin my second question. As we think about the [full] contribution in the fiscal '25, if we annualize the fourth quarter contribution, to me, it's going to lead me to think that core Cisco is kind of flattish kind of embedded in your guidance for the full year. Is that fair? And if so, how are you thinking about the networking growth for the full-year guide? Thank you

Question: Adrienne Colby - Citi Investment Research (US) - Analyst : Hi. It's Adrienne Colby for Atif. With regards to the inventory levels normalizing and a bit to the prior question, how should we think about the quarterly trends in the business? Are we sort of back to a scenario with regular sort of prior seasonal dynamics? Or as the business mix has evolved, are things changing? And also, as we think about fiscal year '25, how should we think about the January dynamic with Splunk? It looks like historically, that was a pretty strong quarter for Splunk.

Question: Karl Ackerman - BNP Paribas Securities Corp. North America - Analyst : Yeah. Thank you. You indicated that inventory digestion for hyperscale and enterprise networking is largely behind you. Though, Scott, I think you noted in your -- in general, that price was somewhat of a headwind to product revenue in the quarter. Could you speak to the rate of change in the improving order visibility since the beginning of this year? In other words, has visibility improved from three months to, say, six to nine months? And then second, do you anticipate the pricing environment stabilizing or improving from here as you look to your fiscal '25 revenue outlook? Thank you.