Release Date: May 14, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cisco Systems Inc (CSCO, Financial) reported strong Q3 results with revenue, margins, and earnings per share all exceeding the high end of guidance ranges.
- The company achieved significant growth in annualized recurring revenue, remaining performance obligations, and subscription revenue, supporting future performance.
- AI infrastructure orders from web-scale customers exceeded $600 million in Q3, bringing the year-to-date total to over $1 billion, surpassing the fiscal year 2025 target early.
- Cisco Systems Inc (CSCO) returned $3.1 billion to shareholders through share repurchases and dividends in Q3, totaling $9.6 billion year-to-date.
- The company saw strong demand across various segments, including a 20% year-over-year growth in total product orders, driven by web-scale infrastructure and enterprise routing.
Negative Points
- Despite strong performance, Cisco Systems Inc (CSCO) faces uncertainties related to tariffs, which could impact future financial results.
- The company noted that the macroeconomic environment remains uncertain, which could affect customer purchasing behavior.
- There is a potential risk of slowing cloud CapEx, which could impact Cisco Systems Inc (CSCO)'s growth in the cloud segment.
- The transition to AI infrastructure is nonlinear, and execution challenges could affect Cisco Systems Inc (CSCO)'s ability to capitalize on this opportunity.
- Cisco Systems Inc (CSCO) faces competitive pressures in the AI and networking markets, which could impact market share and profitability.
Q & A Highlights
Q: What are you seeing in terms of customer buying behavior given the uncertainty with tariffs, and any commentary around public sector and federal?
A: Charles Robbins, CEO, stated that there hasn't been any meaningful change in customer purchasing behavior, and they remain committed to technology transitions, particularly AI. Scott Herren, CFO, added that there was no broad-based pull-ahead business due to tariffs. Regarding the public sector, Robbins noted that global public sector orders were up 8%, with US federal orders showing double-digit growth despite challenges in the civilian sector.
Q: With Meta growing CapEx by 70%, do you think 2025 is a peak year for cloud CapEx, and what happens to Cisco if cloud CapEx slows down?
A: Robbins expressed that he does not anticipate 2025 to be a peak year for cloud CapEx, especially on a global basis, citing ongoing sovereign cloud strategies and investments. Scott Herren added that the enterprise AI opportunity, particularly in building out inferencing capabilities, has several years to run.
Q: Can you elaborate on the large sovereign deployment opportunity and the impact of the G200 silicon on data center switching?
A: Robbins clarified that the HUMAIN announcement in Saudi Arabia is not included in the $600 million AI orders and that they are just getting started. Regarding the G200 silicon, it is central to the systems orders, and customers are eager for more capacity, indicating strong demand.
Q: How is Cisco participating in the Middle East AI opportunities, and what is the momentum in the enterprise vertical, particularly campus?
A: Robbins mentioned that Cisco's discussions in the Middle East involve networking, compute, security, and observability, with significant spending expected. In the enterprise vertical, there is strong demand for modernizing infrastructure, driven by the need for advanced networks to support AI applications.
Q: What is driving the networking order strength, and can you share organic revenue growth rates excluding Splunk?
A: Robbins noted that networking order strength was broad-based, with growth in enterprise switching, data center switching, and Wi-Fi 7. Scott Herren stated that Splunk is performing slightly ahead of expectations, and the integration is going well. He mentioned that they do not plan to break out organic versus inorganic growth going forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
