Cisco Systems Q4 2023 Earnings Results & Report

Cisco Systems EPS Results

• Actual EPS: $1.14
• Consensus EPS: $1.06
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: $0.74
• EPS Beat Rate: 7 of last 8 quarters

Cisco Systems Revenue Results

• Actual Revenue: $15.20 billion
• Expected Revenue: $15.05 billion
• Beat/Miss: Beat by +$153.15 million
• YoY Revenue Growth: +16.00%

Cisco Systems (NASDAQ:CSCO) is a global technology company that develops networking, cybersecurity, collaboration and observability solutions for businesses, government organizations and service providers. Its offerings include routers, switches, wireless networking equipment, data-center infrastructure, security software and services, as well as technologies that support cloud and hybrid IT environments.

The company also provides collaboration tools through its Webex portfolio, cloud-managed networking through Cisco Meraki and security and observability capabilities that include technologies from Splunk, which Cisco acquired in 2024. Cisco complements its products with technical support, consulting, managed services and other professional services designed to help organizations connect, secure and manage their digital operations.

Founded in 1984 by Stanford University computer scientists Leonard Bosack and Sandy Lerner, Cisco is headquartered in San Jose, California, and serves customers across North America, Europe, Asia-Pacific and other international markets. Chuck Robbins has served as Cisco’s chairman and chief executive officer since 2015.

Cisco Systems Q4 2023 Earnings Call Transcript

Key Takeaways

• Cisco delivered record Q4 and FY 2023 results, reporting Q4 revenue of $15.2 B and non-GAAP EPS of $1.14, and returning $10.6 B to shareholders through $5 B of buybacks and increased dividends.
• Full-year revenue rose 11% to $57 B—the fastest growth in over a decade—and Q4 product orders grew over 30% sequentially with double-digit gains across all customer markets.
• The company is ramping its AI and networking roadmap, including launching next-gen Silicon One ASICs, joining the Ultra Ethernet Consortium, and securing over $500 M in AI Ethernet fabric orders.
• For Q1 FY 2024, Cisco guides revenue of $14.5–14.7 B and non-GAAP EPS of $1.02–1.04, with modest topline growth but faster bottom-line expansion, and notes a $2.8 B federal tax payment deferral hitting in Q1.
• Supply normalization drove backlog toward twice historical levels, while RPO climbed 11% to $34.9 B and ARR reached $24.3 B (up 5%), underpinning strong visibility and predictable recurring revenue.

Presentation

[Operator]

Welcome to Cisco's Q4 and fiscal year 2023 financial results conference call. At the request of Cisco, today's conference is being recorded. If you have any objections, you may disconnect. Now, I would like to turn the call over to Marilyn Mora, Head of Investor Relations. Ma'am, you may begin.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Welcome, everyone, to Cisco's Q4 fiscal 2023 quarterly earnings conference call.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

This is Marilyn Mora, Head of Investor Relations, and I'm joined by Chuck Robbins, our Chair and CEO, and Scott Herren, our CFO. By now, you should have seen our earnings press release.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

A corresponding webcast with slides, including supplemental information, will be made available on our website in the Investor Relations section following the call. Income statements, full GAAP to non-GAAP reconciliation information, balance sheets, cash flow statements, and other financial information can also be found in the Financial Information section of our Investor Relations website.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Throughout this conference call, we will be referencing both GAAP and non-GAAP financial results, and we'll discuss product results in terms of revenue and geographic and customer results in terms of product orders, unless stated otherwise.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

All comparisons made throughout this call will be done on a year-over-year basis.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

The matters we will be discussing today include forward-looking statements, including the guidance we will be providing for the Q1 and full year of fiscal 2024.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

They are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

With respect to guidance, please also see the slides and press release that accompany this call for further details.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

With that, I'll now turn it over to Chuck.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Thanks, Marilyn. Good afternoon, everyone. Fiscal 2023 was a milestone year for Cisco.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We delivered on our operational and financial goals while accelerating our transformation.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We achieved record revenue and earnings per share in both the Q4 and the full year.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We also generated strong margins, record operating cash flow, and strong shareholder value, returning $10.6 billion via share repurchases and increasing cash dividends. In FY 2023, we delivered nearly $57 billion in revenue, up 11% year-over-year, the highest revenue growth rate in over a decade.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Overall, customer demand also remained solid. In Q4, we achieved over 30% total sequential product order growth, the second highest in 20 years, with double-digit increases across all customer markets.

[Chuck Robbins, Chair and CEO at Cisco Systems]

As we look to build on this strong performance going forward, we remain focused on the following: first, growing market share in all key areas of our business.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Second, driving innovation and extending our leadership by investing in significant new opportunities for growth in AI, cloud, and security.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Third, delivering long-term, sustainable value creation for our stakeholders. Fourth, transforming our business model by growing recurring revenue.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Consistent with what we said last quarter, we expect to build on our record results, delivering modest revenue growth in fiscal year 2024, with the bottom line growing faster than the top line, demonstrating operating leverage.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Our outlook reflects good visibility and predictability, driven by healthy backlog, ARR, and RPO.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We remain deeply committed to building shareholder value and increasing returns to our investors.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We will do this through a long-term commitment to greater operating leverage, while increasing our annual share repurchases and growing our dividend.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Now let me share additional detail on the quarter and key growth opportunities ahead for Cisco.

[Chuck Robbins, Chair and CEO at Cisco Systems]

First, one of our greatest competitive advantages is our pace of innovation. This quarter, we announced new solutions spanning Generative AI, hybrid work, security, Full-Stack Observability, and sustainability. In addition, we remain focused on delivering a more unified and simpler experience for our customers.

[Chuck Robbins, Chair and CEO at Cisco Systems]

As I've stated in the past, we knew that as our backlog cleared, we would see corresponding market share gains. With the release of the calendar Q1 results, we gained over 3 percentage points of market share year-over-year in our three largest networking markets, Campus switching, wireless LAN, and SP routing.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We expect further share gains in these areas as market share numbers are released for calendar Q2. Second, the acceleration of AI will fundamentally change our world and create new growth drivers for us.

[Chuck Robbins, Chair and CEO at Cisco Systems]

While AI has been an important element in our products for several years, this quarter, we announced new market-leading AI technologies across our collaboration and security portfolios designed to boost productivity, enhance policy management, and simplify tasks.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We also launched new AI scale infrastructure innovation to allow our customers to process AI workloads more efficiently.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Cisco's ASIC design and scalable fabric for AI position us very well to build out the infrastructure that hyperscalers and others need to build A/ML clusters. This is a huge opportunity for Cisco, and we are laser-focused on leading and winning in this space.

[Chuck Robbins, Chair and CEO at Cisco Systems]

As a result of our innovation in this area, we expect Ethernet will lead in connecting AI workloads over the next five years.

[Chuck Robbins, Chair and CEO at Cisco Systems]

To accelerate this transition, Cisco became a founding member of the Ultra Ethernet Consortium, an industry-wide effort to drive open, large-scale, Ethernet-based fabrics for high-performance networking. In June, we launched our next generation Silicon One switching ASICs to support large-scale GPU clusters for AI and ML workloads. We are seeing early success in hyperscale Ethernet AI fabric deployments. To date, we have taken orders for over $500 million for AI Ethernet fabrics.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We are also piloting 800 gig capabilities for AI training fabrics. Overall, Cisco is committed to helping our customers navigate this transition in a trusted and responsible way to deliver on the full promise of this technology, and we are well positioned to win. Next, security remains a top priority.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Our AI-driven Security Cloud platform has comprehensive capabilities across the network, endpoint, and the cloud, helping to simplify security management while increasing efficacy.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Our new technologies like Cisco XDR, Cisco Multicloud Defense, and Cisco Secure Access, a Secure Service Edge solution, are seeing rapid early adoption. For example, Goldman Sachs has been one of our early adopters of our Cisco Multicloud Defense solution. In addition, we are working with Apple to incorporate Cisco's Secure Access solution into iOS and macOS. These innovations, combined with our recent acquisitions, show how we are extending our security portfolio with deep telemetry, AI, and identity threat capabilities.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Given our install base of 300,000 Cisco security customers, we believe we have the opportunity to accelerate revenue growth and security over the next few quarters. To summarize, we had a phenomenal year.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Our fiscal year 2023 and Q4 results demonstrate the strength of our business today and are a solid foundation for future growth.

[Chuck Robbins, Chair and CEO at Cisco Systems]

I also want to be very clear on our commitment to increasing shareholder returns through capital return, innovation, and strong execution. Last quarter, we committed to operating leverage in Q4 and fiscal year 2024, and our guidance today reflects this. Today, I want to confirm that this will be our long-term strategy beyond fiscal year 2024. We will also drive a high degree of consistency into our stock repurchase program and will maintain the quarterly levels in the range that we have over the past few quarters.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Finally, I want to take a moment to thank our teams, who all played an important role in delivering these record full-year results and their deep commitment to our to the success of our customers and partners.

[Chuck Robbins, Chair and CEO at Cisco Systems]

With our focus on innovation and our commitment to operational excellence, I have tremendous confidence in our ability to capitalize on the many opportunities ahead. I'll now turn it over to Scott.

[Scott Herren, CFO at Cisco Systems]

Thanks, Chuck.

[Scott Herren, CFO at Cisco Systems]

I'll start with a summary of our financial results for the quarter, then cover the full fiscal year, followed by our guidance. As Chuck said, we delivered another record quarter, driven by focused execution, continued business transformation, and the actions we took during the year to mitigate supply issues.

[Scott Herren, CFO at Cisco Systems]

We reported our strongest-ever revenue, non-GAAP operating margin, earnings per share, and operating cash flow in Q4. Total revenue was $15.2 billion, up 16% year-over-year, at the high end of our guidance range. Non-GAAP net income was $4.7 billion, up 36%. Non-GAAP EPS was $1.14, up 37%, exceeding the high end of our guidance range.

[Scott Herren, CFO at Cisco Systems]

Looking at our Q4 revenue in more detail, total product revenue was $11.7 billion, up 20%. Service revenue was $3.6 billion, up 4%.

[Scott Herren, CFO at Cisco Systems]

Within product revenue, Secure, Agile Networks, our largest product, product category, was very strong, up 33%. Switching revenue had double-digit growth, with strength in both campus and data center switching, driven by our Catalyst 9000, Nexus 9000, and Meraki offerings.

[Scott Herren, CFO at Cisco Systems]

Enterprise routing declined, driven primarily by access, partially offset by strength in our Catalyst 8000 series SD-WAN and IoT routing.

[Scott Herren, CFO at Cisco Systems]

Wireless had double-digit growth, driven by our Wi-Fi 6 products and Meraki wireless offerings. Internet for the Future was up 3%, driven by growth in our core routing products, including strong growth in our Cisco 8000 offering.

[Scott Herren, CFO at Cisco Systems]

We also saw double-digit growth in Webscale. Collaboration was down 12%, driven by declines in collaboration devices and meetings, partially offset by growth in Webex Calling and Webex Contact Center.

[Scott Herren, CFO at Cisco Systems]

End-to-End Security was flat, with growth in our Zero Trust offerings offset by a decline in our network security offerings. Optimized Application Experiences was up 15%, driven by growth across the portfolio, including double-digit growth in ThousandEyes and AppDynamics.

[Scott Herren, CFO at Cisco Systems]

We continue to make progress on the transformation of our business to more recurring revenue-based offerings, driven by higher levels of software and subscriptions.

[Scott Herren, CFO at Cisco Systems]

We saw solid performance in our ARR of $24.3 billion, which increased 5% with product ARR growth of 10%. Total software revenue accelerated to $4.6 billion, an increase of 17%, with software subscription revenue up 20%. 85% of our software revenue was subscription-based. Total subscription revenue was $6.6 billion, an increase of 13%, and RPO was $34.9 billion, up double digits at 11%.

[Scott Herren, CFO at Cisco Systems]

Both product and service RPO had strong growth, with product RPO up 12% and service RPO up 9%. Total short-term RPO grew to $17.9 billion.

[Scott Herren, CFO at Cisco Systems]

Total product orders were down 14% year-on-year, but grew sequentially by more than 30%. This was against a strong performance in the year-ago quarter, where we delivered the second-highest orders in absolute dollars in the history of the company.

[Scott Herren, CFO at Cisco Systems]

The aging of our backlog has continued to improve as the supply situation normalizes, and, as expected, increased customer deliveries reduced our year-end backlog to roughly double historical levels as we enter fiscal 2024.

[Scott Herren, CFO at Cisco Systems]

Order cancellation rates remain below pre-pandemic levels, which reflects the true demand and criticality of our technologies to our customers.

[Scott Herren, CFO at Cisco Systems]

Total non-GAAP gross margin came in at 65.9%, exceeding the high end of our guidance range and up 260 basis points. Product gross margin was 65.5%, up 420 basis points.

[Scott Herren, CFO at Cisco Systems]

The increase was primarily driven by positive pricing and product mix, as we realized the benefits from the actions we took in the prior fiscal year. We also drove productivity improvements with lower freight and logistics, component and other costs. Services gross margin was 67.5%, down 150 basis points year-over-year. Non-GAAP operating margin came in at 35.4%, exceeding the high end of our guidance range and up 300 basis points. T

[Scott Herren, CFO at Cisco Systems]

This improved leverage was driven by both our strong non-GAAP gross margin and ongoing cost management.

[Scott Herren, CFO at Cisco Systems]

Shifting to the balance sheet, we ended Q4 with total cash, cash equivalents and investments of $26.1 billion. We had record operating cash flow for the quarter of $6 billion, up 62%, driven primarily by strong top line performance and the deferral of our Q4 federal tax payment.

[Scott Herren, CFO at Cisco Systems]

Consistent with our prior commentary, the IRS tax relief related to the California floods postponed our current year federal income tax payment until Q1 of our fiscal 2024. Consequently, in Q1 of fiscal 2024, our federal income tax-related cash outflows will include an incremental $2.8 billion of payments for these prior quarters. This quarter, we returned $2.8 billion to shareholders, comprised of $1.6 billion for our quarterly cash dividend and $1.3 billion of share repurchases.

[Scott Herren, CFO at Cisco Systems]

Consistent with our capital allocation strategy that we outlined last quarter, we are committed to increasing shareholder returns through a greater operating leverage while increasing our annual share repurchases and growing our dividend.

[Scott Herren, CFO at Cisco Systems]

Turning to the full fiscal year, we delivered record results in revenue, net income, earnings per share, and operating cash flow. Revenue for the year was $57 billion, up 11%, and non-GAAP earnings per share was $3.89, up 16%, demonstrating again the operating leverage that we've been driving. In terms of our software metrics, total software revenue for the full year was up 12% at $17 billion, with the product portion up 14%. 84% of software revenue was subscription-based, which is up 2 percentage points.

[Scott Herren, CFO at Cisco Systems]

Total subscription revenue was $24.6 billion, an increase of 10%.

[Scott Herren, CFO at Cisco Systems]

Total non-GAAP gross margin was 64.5%, down 10 basis points. On the bottom line, non-GAAP net income was $16 billion, up 13%. We delivered record operating cash flow of $19.9 billion, up 50% compared to fiscal 2022, driven primarily by strong results, linearity, collections, and the federal tax deferral, as noted previously. We returned $10.6 billion in value to our shareholders via cash dividends and stock repurchases. This is comprised of $6.3 billion in quarterly cash dividends and $4.3 billion of share repurchases.

[Scott Herren, CFO at Cisco Systems]

We increased our dividend for the 12th consecutive year in fiscal 2023, reinforcing our confidence in the strength and stability of our ongoing cash flows. We continued to invest organically and inorganically in our innovation pipeline during Q4. We closed the acquisitions of Lightspin, Smartlook, and Armorblox.

[Scott Herren, CFO at Cisco Systems]

These investments are consistent with our strategy of complementing our internal innovation with R&D with targeted strategic M&A. To summarize, we had a very strong quarter and fiscal year with record results. We executed well, delivering double-digit top-line growth, profitability, and cash flow. We continue to make progress on our business model shift to more recurring revenue, while making strategic investments in innovation to capitalize on our significant growth opportunities.

[Scott Herren, CFO at Cisco Systems]

Turning now to our guidance. For fiscal Q1, our guidance is: we expect revenue to be in the range of $14.5 billion-$14.7 billion. We anticipate the non-GAAP gross margin to be in the range of 65%-66%.

[Scott Herren, CFO at Cisco Systems]

Our non-GAAP operating margin is expected to be in the range of 34%-35%, and non-GAAP earnings per share is expected to range from $1.02-$1.04. For fiscal year 2024, our guidance is as follows: We expect revenue to be in the range of $57 billion-$58.2 billion.

[Scott Herren, CFO at Cisco Systems]

Non-GAAP earnings per share is expected to range from $4.01-$4.08. In both our Q1 and full year guidance, we're assuming a non-GAAP effective tax rate of 19%. I'll now turn it back to Marilyn, so we can move into the Q&A.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Thanks, Scott. Michelle, let's go ahead and queue up for questions.

[Operator]

Thank you. Tim Long with Barclays, you may go ahead.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Tim?

[Tim Long, Analyst at Barclays]

Thank you. Yeah, Chuck, maybe we'll start with kind of the order backlog performance. Sounds, you know, a lot better than seasonal in Q4. Could you talk a little bit about what you attribute that to? Then maybe looking into next year, doesn't look like you're baking a lot of that into either Q1 or the full year. What's, you know, what's kind of the expectation for, you know, kind of the pull-through of those orders, into what you're gonna see in revenues in, in fiscal 2024? Thank you.

[Scott Herren, CFO at Cisco Systems]

Thanks. Tim, I'll provide some color, and Scott, maybe you can talk about the conversion of the, of the orders.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Mm-hmm.

[Scott Herren, CFO at Cisco Systems]

Look, first of all, we're, we're obviously dealing with, in a world that has a lot of dynamics right now, but our team's executed incredibly well. As I've said on prior calls, with our sales organization, when, when we see transitions in sort of customer buying, you know, if, if it's getting worse, what we see is that our teams will forecast a quarter, and then by the end of the quarter, they will have dropped and/or missed. When it's beginning to stabilize and get better, they tend to actually exceed the forecast. What we saw in Q4,

[Chuck Robbins, Chair and CEO at Cisco Systems]

They had their opening forecast, they nailed month 1, they nailed month 2, and they exceeded month 3 by several hundred million dollars. It was one of those quarters that they actually overperformed what they thought they would do at the beginning of the quarter, which is, which is a positive sign, but again, it's 1 quarter. We also had the largest quarter in our history of Enterprise Agreements from an orders perspective. We had a lot of big customers making big commitments, which was a positive thing. If you think about what, what was going on around the world, I'd say service provider just continued to be weak. Enterprise improved, commercial improved. US enterprise was basically flat, that was better than we'd been experiencing for sure, which is a good sign.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Public sector remained steady. In verticals, we saw a strength in financial services, transportation, and energy, and we saw some good strength in countries like India and Saudi around the world. It's one quarter, but if you compare it to the prior few quarters, where the teams had opening forecasts that they generally missed by the time we got to the end of the quarter, this was, this was one where I'd say that it was much more stable as we went through the quarter. Scott, you want to talk about the order conversion?

[Scott Herren, CFO at Cisco Systems]

As we think about fiscal 2024, we've got pretty good visibility, driven by really the business model shift that we've talked about. A couple of data points that, that I think you already have, Tim. One is current RPO of $17.9 billion, total RPO approaching $35 billion, of which $17.9 billion is current, meaning it turns into revenue in the next 12 months. We ended the year as we, as we expected, with roughly double our normal backlog levels. That excess backlog will work down in the first half of fiscal 2024, with the majority of that being worked off in Q1, by the way. We've got $24.3 billion of ARR that we get a chance to renew.

[Scott Herren, CFO at Cisco Systems]

Obviously, some of that will already be captured in RPO, but there's opportunity that's not already captured in RPO as well. We, we enter the year with round numbers, 40% of that top line, pretty much already in hand between those, those three categories. Feel good about the way we've, the, the way we see the year laying out.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah, if I could make 1, 1 more comment, Tim. On the sequentials, we said, you know, given that the year-over-years are just sort of difficult. They don't really provide a clear view on what's going on. We've been, we've been talking about sequentials a fair amount, and I did say in my opening comments that sequentials from Q3 to Q4 were in excess of 30%. To put that in perspective, it's typically 18-20. From a customer segment perspective, enterprise was well above that, public sector was well above it, commercial was pretty close to it, and service provider was, was the, was the low one. However, it was still above historical trends on a sequential basis. Just to try to give you as much color as we can.

[Tim Long, Analyst at Barclays]

Thank you. Very helpful.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Michelle, let's go ahead and move to the next question.

[Operator]

Thank you. Amit Daryanani with Evercore. You may go ahead, sir.

[Amit Daryanani, Senior Managing Director at Evercore ISI]

Thanks a lot for taking my question, and congrats on a nice set of numbers here. You know, I guess maybe, two things I'd love to get your perspective on. You know, Chuck, when you talk about consistency in capital allocation, can you just expand a bit more on what does that mean? Are you gonna think about this as a % of free cash flow? That you're gonna go for buybacks or some other metric? Can you just talk about what, what does that mean, and how do you intend to deploy the cap allocation? That'd be helpful.

[Amit Daryanani, Senior Managing Director at Evercore ISI]

Perhaps somewhat, maybe related to that, when we think about the fiscal 2024 revenue guide that you folks are providing, 7% growth in Q1, I think 1% for the full year, that sort of would imply back half will decline. What are you assuming in the back half that gives you that kind of worry? That would be helpful. Thank you.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Let me make, let me make some, just a couple comments. I'm gonna hand it to Scott and let him answer probably both of these. On the capital allocation and the leverage comments, what I would say is that we've, we've spent a lot of time talking to our shareholders over the last few months. It's clearly important to our shareholders that we, that we commit to and we deliver on operating leverage in our P&L. We've been doing it, but we haven't committed to it for long term. That's what we're basically doing today, is saying that we are gonna continue to commit to provide operating leverage in the P&L as we look to the future. Then on the, the buybacks, we had also increased...

[Chuck Robbins, Chair and CEO at Cisco Systems]

There are 2 things we wanted to do, was increase the amount as well as drive more consistency and predictability for our shareholders. The rate, as I said, that we've been running at, like, the last 3 quarters, is sort of the target that we would be at, on a quarterly basis as we go forward. Scott, you want to add to that and then talk about the revenue guide?

[Scott Herren, CFO at Cisco Systems]

Yeah, will do. Amit, I think you were one of those voices that talked about cap allocation consistency...

[Amit Daryanani, Senior Managing Director at Evercore ISI]

I think I remember that.

[Scott Herren, CFO at Cisco Systems]

at a higher level and also being consistent. What you've seen over the last three quarters is that share buyback has been very consistent at $1.25 billion, right around $1.25 billion per quarter. We see that continuing into the future. That's $5 billion a year in share buybacks. The dividend right now runs round number $6.5 billion. You know, you add those two together, that's $11.5 billion of capital return to shareholders. Doesn't feel like it's in a bad place, but responding to the need to be both elevated and more consistent in share buybacks is what you're hearing. You've seen us do it already. You know, the difference is we're verbalizing it in advance now, I guess.

[Scott Herren, CFO at Cisco Systems]

On your revenue guide question, I think it, it's easy to get a little confused by the year-on-year growth rates when, you know, we've had the supply constraints that we've had over the last few years. I mean, the, the reality is, some of the revenue that we ended up posting this year in fiscal 2023, are orders that we took and customers wanted the product back in fiscal 2022, we just couldn't, we just couldn't get it out. We couldn't get it delivered because of the supply constraints. The, the, the better way to think about this is: what's been the, you know, the compound annual growth rate from when we started building that backlog and the supply constraints set in?

[Chuck Robbins, Chair and CEO at Cisco Systems]

... which was the end of our fiscal 2021 through, and I'll just pick the midpoint of our guide for fiscal 2024. If you do the compound annual growth rate on revenue through that time, it's right around 5%, which is, as you know, in, in line with what we see as our opportunity longer term. I, I think the, it, it's a little, it's a little bit tough to track what's happening when you just rely on year-on-years, because the year-on-years have just been so skewed by the supply chain. If you step back from it and look at endpoint to endpoint, that growth rate feels pretty good.

[Amit Daryanani, Senior Managing Director at Evercore ISI]

No, that clear figure is really helpful. Thank you.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Mm-hmm.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Great. Thanks, Amit. Next question?

[Operator]

Meta Marshall with Morgan Stanley, you may go ahead.

[Meta Marshall, Analyst at Morgan Stanley]

Great. Thanks. You know, fantastic kind of data points around the traction with the hyperscalers. When it comes to kind of the, the $500 million of orders you noted, or even kind of the 800 gig trials, you know, is that with scheduled fabric? Is that with Silicon One? Just kind of trying to get a sense of what piece of the portfolio that is. Then just on the security portfolio, you know, clearly you're rolling out a lot of new products, changing some of the sales approaches. Just when do you think we could see an inflection in that business? Thanks.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah, Meta, thank you. On the, on the Ethernet, underneath the AI GPU networks, it is Silicon One, for sure. You know, I think for the next 12 months or so, I think we'll be doing trials. I think we'll have some, some opportunities, there'll still be a lot of InfiniBand, that's why we joined as a founding member of this Ultra Ethernet Consortium, that we can help guide the standards and really deliver scheduled fabric, to your point, in a very effective way. We think, you know, into FY 2025 and beyond, this thing will begin to shift to more of an Ethernet-based infrastructure. On the security front, yeah, we've had some, some early traction.

[Chuck Robbins, Chair and CEO at Cisco Systems]

I mentioned Goldman and the Multicloud Defense, which is a great sign of confidence in that solution. If you look at our XDR platform, which candidly, we just went GA with it right at the end of the quarter, we already took a seven-figure order from a retailer in Europe, that was positive. We took one of our largest security orders ever. We took an eight-figure security order from a Fortune 10 company in Q4. There's some early green shoots, and the teams are executing. The early feedback and early, you know, commentary from analysts and customers, et cetera, is positive, we've got to actually deliver on it, hopefully, in the second half of this year, we'll see some real positive impact, 25 for sure.

[Meta Marshall, Analyst at Morgan Stanley]

Great. Thank you.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Next question, please.

[Operator]

Michael Ng with Goldman Sachs. You may go ahead, sir.

[Michael Ng, Analyst at Goldman Sachs]

Hey, good afternoon. Thanks for the question. I just have two. First, it was encouraging to hear about the share gains on Campus switching, SP routing and wireless, as well as the expectation to continue to grow share. I was just wondering if you could talk a little bit about, you know, the sales execution, the product roadmap there that gives you the most confidence in that continued share growth. Second, I was just wondering if you could talk a little bit about your expectations as it relates to the trajectory of orders going forward. It sounds like if the backlog kind of gets back to normal levels in the Q1, it should just grow along with revenue growth.

[Michael Ng, Analyst at Goldman Sachs]

As we think about, order growth beyond the Q1, but just would love your, your thoughts there. Thank you.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Thanks, Michael. On the share gains in the enterprise networking space, which is what you're asking about, we, we expect Q2 will be equal to or maybe slightly above the incremental gains that we see when those numbers come out, based on some estimates that we have done internally. I would say the thing that is really helping beyond being great products, we have done a couple things. Number one, we have begun to deliver on monitoring and then subsequent management of our Catalyst, the traditional Catalyst portfolio, with the Meraki dashboard. That's a real advantage for customers. It allows them to run a hybrid of the two portfolios. It allows them to have, you know, visibility from one dashboard to both sets of portfolios. That's been really well received.

[Chuck Robbins, Chair and CEO at Cisco Systems]

It has been a key driver in significant improvement in our renewal rates on the software side. While I'm talking about it, I thought I would share one milestone with you. I've been asked for a few years, when do we think the software renewals in the enterprise networking space would be meaningful? FY 2024 is the first year I think it'll be meaningful. Just to give you a perspective on it, we expect this year to renew enterprise networking software at close to $1 billion. The transition that we've been going through for all these years is gonna hopefully begin to start to pay solid benefits for us going forward. That's what's going on in that portfolio. Scott, you wanna talk about the trajectory of orders? Yeah.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah, and Michael, thanks for that question. What I'd say is, if you remember our commentary from the last call, we said there were kind of three things going on inside product orders. One was the lead times were normalizing, going from being fairly lengthy to going back to a normal level, which, of course, if the lead time yesterday was 30 weeks, and today it's 10 weeks, means you don't have to place another order for 20 weeks. Those are mostly normalized. They will finish being normalized, certainly in the first half of fiscal 2024, and so that effect will be dampened.

[Scott Herren, CFO at Cisco Systems]

The second is backlog, and as we were still, still sitting on excess backlog, and we still do, but we've obviously been working our way through that and delivering product to customers. As we get their backlog orders in their hands, they can complete that project and then place the order for the next project. And so that's also been a little bit of a headwind to bookings, and then it's whatever's happening in the macro would be the third factor. We think those first two will normalize in the first half of fiscal 2024. Lead times will be normalized, certainly by the time we get to the end of the first half, and much of the backlog, the excess backlog, will ship out during the Q1 of fiscal 2024.

[Scott Herren, CFO at Cisco Systems]

I think we'll have a, a clearer view, and I expect to see more normal ordering patterns. Of course, we don't guide orders, but I expect to see more normal ordering patterns in the second half of the year.

[Matthew Niknam, Managing Director at Deutsche Bank]

That's all very helpful. Thank you, Chuck. Thank you, Scott.

[Scott Herren, CFO at Cisco Systems]

Thank you.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Great. Thank you. Let's go ahead and take the next question.

[Operator]

Ittai Kidron with Oppenheimer. You may go ahead.

[Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Thanks, guys. High energy, I like this. Chuck, maybe you could talk about the RPO. Very strong performance there, especially when you look at the same, metric a year ago. Maybe you can unpack this a little bit in the context of a few metrics, meaning, duration of contracts customers are willing to go into now, size of deals are, are, they're willing to move into now. I'm just trying to kinda get in a little bit into the, the elements of, of this significant increase in RPO. Appreciate it.

[Scott Herren, CFO at Cisco Systems]

Yeah, thanks, Ittai. I'll, I'll, I'll give you a little color, then I'll let Scott comment again, too. You know, a lot of this is, we've, we've made this transition to, you know, virtually our entire enterprise networking portfolio now is a subscription model. That, that's contributes, and Scott can talk about the year-over-year contribution that we've seen. I mean, we have $35 billion in RPO, I, I think it's an important thing because when you think about market share and some of the concerns that, that people have had, you have to remember that we put a reasonable amount of each order in our core networking portfolio on the enterprise side, goes into RPO and doesn't get reported as revenue. It's ratable, it's a headwind to market share.

[Scott Herren, CFO at Cisco Systems]

The other thing that I would point out is that, you know, we had a record year at $50 billion, almost $57 billion, at a time where we were building RPO to $35 billion, and we have the backlog that we have. There's, we've had a lot of solid customer demand. I'd say in Q4, we, we certainly saw a fair amount of the enterprise networking. As we ship those products, we saw that software come out of backlog, as we've talked about, and move into RPO. We saw a lot of these Enterprise Agreements that we did with our customers, and enterprise contributed to it as well. Those were reasonably large deals. Scott, I'll let you comment anything, any more you want to comment on. Yeah, you, you specifically asked about duration.

[Scott Herren, CFO at Cisco Systems]

There's not much change in duration overall, Ittai, so that, that, that's not it. Q4 typically is a quarter where we have more large trans- more large multi-year transactions. We talk about Enterprise Agreements and, and whole portfolio agreements. You typically will see a little bit of a bump in Q4 driven by that, and then a little bit of a, I'm sorry, an RPO in Q4. In Q1, that typically, the typical pattern would see it come down just slightly as we work our way through those. I think the, the other thing to just bear in mind, you know, we've got net RPO growth this year of $3.3 billion, of which product had a net growth of $1.7 billion.

[Scott Herren, CFO at Cisco Systems]

If you looked at our current RPO when we began the year, it was about $16.8 billion, which means all of that came out of RPO.

[Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Short term.

[Scott Herren, CFO at Cisco Systems]

Yet on top of that, we got short term. On top of that, we added, you know, $1.7 billion. We, we added quite a bit of current year sales into that RPO balance. Back to Chuck's point, that's revenue that many of our competitors recognize immediately as they ship it. For us, we have the advantage of recognizing it over time, which makes us more predictable and gives us greater visibility into where things are headed.

[Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Appreciate the color. Thank you.

[Scott Herren, CFO at Cisco Systems]

Mm-hmm.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Thanks, Itai. Let's move to the next question.

[Operator]

Matthew Niknam with Deutsche Bank. You may go ahead, sir.

[Matthew Niknam, Managing Director at Deutsche Bank]

Hey, guys. Thank you for taking the question. A two-parter, if I could. First, as we think about fiscal 2024, you're forecasting 1% top-line growth and about 4% non-GAAP EPS growth, with a fairly strong exit rate on gross margin. Is it fair to assume the lift from gross margins may get offset somewhat by some OpEx reinvestment? Just trying to think about the puts and takes there. Then broadly, at the analyst day a couple of years ago, I think, Scott, you laid out a 5%-7% target for both top and bottom line. I'm just wondering if that's evolved at all in light of some of the greater emphasis on operating leverage that you're talking about today. Thanks.

[Scott Herren, CFO at Cisco Systems]

Yeah, Matthew, on your first question, I think gross margin settling, you saw our guide for Q1 of gross margins in the 65%-66% range, and I think it settles in there for the full year. You can do the math with what we've projected on the top line. That drops down to, you know, a mid-single-digit OpEx growth number. In line with expectations, certainly given the environment of merit increases. It doesn't provide a lot of incremental investment, but I think that's in sync with what you've seen us do over time. The long-term model, like that was, that was opportunity-based. If you look backwards, what you've seen is we have delivered the bottom line growing faster than the top line.

[Scott Herren, CFO at Cisco Systems]

I think the only difference that you hear from us now is, as I said, we're articulating it in advance instead of once it's happened. That's really the way to think about that.

[Matthew Niknam, Managing Director at Deutsche Bank]

Great. Thank you.

[Scott Herren, CFO at Cisco Systems]

Mm-hmm.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

All right. Thanks, Matthew. Michelle, let's take the next question.

[Operator]

James Fish with Piper Sandler. You may go ahead.

[James Fish, Managing Director and Senior Research Analyst at Piper Sandler]

Hey, guys. Thanks for the questions. Maybe just diving in on, on the go-to-market side. You know, we're hearing you guys are looking to move more of the specialist sales teams out and more towards, kind of a cross sale, more portfolio, kind of motion. Are you doing a larger sales restructuring right now? Is there anything you can do to better package solutions across these multiple, like, segments, especially on, you know, the growth segments that, that are kind of struggling here, as Meta kind of pointed out earlier, with even security? Lastly, on the capital return side, I, I know you guys get asked about this ad nauseam, but, and, and you talked about potential, you know, being strategic and all of that.

[James Fish, Managing Director and Senior Research Analyst at Piper Sandler]

How do you feel about the push versus pull of either further acquisitions in either of the key growth segments that you outlined, Chuck, versus possibly even spinning off some of those segments, like the more larger companies you're starting to see do? Thanks, guys.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Thanks, James. That was a lot. Let me, let me tell you a little bit of the history on the specialist model. I'll tell you what we're doing in the product portfolio, which allows us to, to clean up the specialist model a little bit and get them a little more focused. Historically, like, let's use security as an example. We've, we've had these different products, and we've sold them all individually. Therefore, you, you need to compete with those individual competitors, so you need subspecialists, you need specialists in every little area of security. What we've been doing across the portfolio is moving to more of a platform approach. It, it makes it easier to sell, and in, in certain areas of our portfolio, like collaboration and security, we've moved to a suite strategy.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We're, we're now packaging up the security portfolio in different suites, which allows for us to sort of optimize the the security specialist, or actually align them more effectively, is probably the best way to say it. That's the work that's been going on. I think as we continue to execute on this platform strategy, it, it certainly simplifies the selling cycle for some of these technologies. I think getting to the suites, we've seen it work in Collab. This past quarter, we had very strong order growth in collaboration. We had positive order growth in security as well.

[Chuck Robbins, Chair and CEO at Cisco Systems]

So for Collab to be showing positive order growth is, is really a byproduct of the suites and leading with calling, as the lead part of the suite, and then also a big focus on Webex Contact Center, which grew triple digits last quarter from an orders perspective. Those are the things that we're trying to do. We're trying to get the portfolio put together in a way that makes it easier and, and requires fewer subspecialists in the field as we move forward. Scott?

[Scott Herren, CFO at Cisco Systems]

On the cap return question, Jim, I'd just reiterate what I said earlier. With the consistency of buybacks now running right around $1.25 billion per quarter, so $5 billion a year, the dividend consumes another $6.5 billion. That's $11.5 billion of cap return that we're committed to. I do expect to continue to, as you've seen us do for the last 12 years, make increases in our, in our dividend payment as you look ahead. That's one lens on it. I would say on the M&A and spinoff part of that, we're constantly evaluating that. We're constantly evaluating what's available in the marketplace. You saw we closed 3, albeit small, kind of tech tuck-in, but 3 acquisitions during the quarter. The team's very active.

[Scott Herren, CFO at Cisco Systems]

We're constantly looking at, at that space, as well as evaluating our own portfolio. There, there's nothing, there's nothing new to report there, but those are constant things that we look at.

[James Fish, Managing Director and Senior Research Analyst at Piper Sandler]

Yes. Helpful color, guys. Thanks.

[Scott Herren, CFO at Cisco Systems]

Mm-hmm.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

All right. Next question, please.

[Operator]

Thank you. Ben Reitzes with Melius Research. You may go ahead, sir.

[Ben Reitzes, Analyst at Melius Research]

Hey, guys, thanks for the question. I wanted to double-click on an earlier question with regard to hyperscalers, the $500 million in AI orders. You know, you had a briefing in June. I was wondering, have things picked up in terms of activity there? It, it seems like maybe it has. And I wanted to see if there's further traction that you could articulate in Silicon One, like, you know, what, what kind of activity are, are you seeing there, and how big a business can this be?

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah. Well, Ben, welcome, and thank you for the question. You know, we have definitely seen traction in the space, lots of discussions, lots of architectural discussions, lots of input from those customers on what they'd like to see in the next generation of silicon, as an example. The teams are off building that. We just delivered in June, as I said earlier, the next generation ASIC that actually is built for this. There's, there's gonna be more and more purpose-built silicon over the next 2 years, and the teams are working on that. Those customers are having a great deal of input in how that silicon gets designed, and in some cases, it's unique to each one. So that's the beauty of us having such an advanced silicon capability.

[Chuck Robbins, Chair and CEO at Cisco Systems]

It allows us, if we need to, to actually build unique silicon by customer because these opportunities are so large. I think on the last call, we talked about the fact that this would probably be 3 to 4 times the opportunity size of the of the original cloud build-out. You know, unfortunately for us, as has been well documented, we missed the original cloud build-out. I can say with every bit of confidence right now that as we go through this AI transition to Ethernet, we are super well positioned. We have incredible silicon that they have been using in other parts of their portfolio. We won 3 more use cases last quarter. We now are, are installed in 21 use cases across the top 6 of these providers, and we expect that that momentum will just continue over the next few years.

[Chuck Robbins, Chair and CEO at Cisco Systems]

I do think that in the short term.

[Scott Herren, CFO at Cisco Systems]

InfiniBand is probably going to still be the preferred in most cases, but they, they are trialing, and we will, much like we already have, we'll get some opportunities to run Ethernet underneath season. As we deliver Scheduled Fabric, it'll become even more prevalent.

[Ben Reitzes, Analyst at Melius Research]

Okay, thanks a lot, Chuck. It's good to be back.

[Scott Herren, CFO at Cisco Systems]

Thanks, Ben.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Thanks. Ben.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Thanks, Ben. I'll take the next question.

[Operator]

Tal Liani with Bank of America. You may go ahead.

[Tal Liani, Managing Director and Senior Research Analyst at Bank of America]

Yes. Hi. I have one kind of big, big picture question and one more specific. Maybe I'll start with the specific question. If I look at the 400 gig Ethernet market share, cloud, if I take Arista and, and white boxes, it's like over 90% of the market. Cisco doesn't have much of a 400 gig market share by the data, but you are talking about growing market share in 800 gig. Can you talk about the dynamics of 400, and then why was it this way in 400, and how it changes in 800 and, and your expectations? Second is about the big picture, and I need, I want to understand kind of the numbers. Product revenues last year were 38.

[Tal Liani, Managing Director and Senior Research Analyst at Bank of America]

Product revenues this year is $43 billion, so that's $5 billion increase, and the declining backlog is about $5 billion. Your, your implied guidance for next year for product revenues is roughly flat, flat plus. Without the support of backlog, how do you get to product revenues? What are the other parts that could go to product revenues and compensate for the fact that backlog is going to be normal by the end of next quarter or next, next 2 quarters, maybe? Thanks.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah, Tal, thank you for that. On the 400 gig to 800 gig, I, I don't know that I've seen the exact reports that you're talking about on the 400 gig, but our teams, we, the volume of ports that we're shipping on 400 gig would imply that, that that's a. I don't know. We've, we've had a great deal of success, and it's been growing quite significantly. But we obviously had, you know, over the last few years, we've been rebuilding our, or actually building our presence in this space. It wouldn't surprise me to see us as a low market share player, but we've certainly want our fair share. On the 800 gig, I think it's just a matter of we're, we're engaged there, we're installed already.

[Chuck Robbins, Chair and CEO at Cisco Systems]

We've got trust with these customers, they've seen what we can do, and, and I think that we're just, we're just in the game at the right time as opposed to where we started. I think from now on, it's just, it's just gives us an opportunity to be there from the beginning as opposed to trying to catch up.

[Scott Herren, CFO at Cisco Systems]

Tal, to your question on the math you're trying to do on product revenue, I think, you know, some of this goes back to the answer that I gave Tim earlier. One of the things you have to consider is some of the product revenue we delivered this year was actually demand from the prior year, right? Demand from fiscal 22, that because of the supply constraints, constraints, we simply couldn't get out the door. Had that not been the case, you would have seen higher product revenue in fiscal 22 and slightly lower product revenue in fiscal 23, and you would have seen a steady increase then from 22 to 23 and 23 to 24. The things that are driving that are the things that we've talked about, right?

[Scott Herren, CFO at Cisco Systems]

We continue to see good traction and market share gains in our enterprise networking products. We are invested early in the AI game and see a great opportunity there. We're getting early success, although it's, you know, you're not seeing a lot of it yet in the P&L, but we're seeing some pretty early success with our revamped security strategy and the great work that team has done. Instead of trying to do it the way you're doing, the delivery has been lumpy. The demand has been less lumpy, is probably the right way to think about it.

[Tal Liani, Managing Director and Senior Research Analyst at Bank of America]

Got it. Thank you.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

All right. Thanks, Tal. Next question.

[Operator]

Samik Chatterjee with JPMorgan. You may go ahead, sir.

[Samik Chatterjee, Analyst at JPMorgan Chase & Co.]

Hi, thanks. This is Joseph Cardoso on for Samik. Just one question for me. You mentioned double-digit growth across all your customer verticals from an order perspective, but also mentioned service provider continue to be weak. I was just hoping you could touch on what you're seeing under the hood in service provider, specifically, if I split it up between telco, AI, and non-AI cloud, how did those track compared to 90 days ago? Then just quickly, a quick clarification on the $500 million in orders in AI. Any way you can parcel out, like, how many customers is reflected in that order number? Then just quickly clarify if that's all hyperscale or if there's any tier 2 cloud or enterprise customers in that mix. Thanks for the question.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah, thank you. On the service provider side, the first question you asked, let me, let me write my notes down. Hold on a second. I don't have to ask you for the question again. On SP, I think I'd say Q4 for the telco side of it, the communication service provider, was probably fairly consistent with what it was the quarter before. It's, it's just relatively weak right now. We see, you know, a lot of these customers are digesting a lot of the infrastructure that they bought over the next few months. We think that our team believes that orders will stabilize on the telco side of the business in the second half of our fiscal year.

[Chuck Robbins, Chair and CEO at Cisco Systems]

On the cloud side, we believe that, you know, they'll continue to invest and they kind of invest in 6-month cycles, and we think that in the middle of our fiscal year, we'll see a, you know, growth in that investment for the first part of 2025. On, on the $500 million, it is definitely in the tier one hyperscalers, so I'll just leave it at that. On the opportunity that we see, we still see-- we won 3 use cases last quarter, and I would say those were primarily non-AI. There's still-- we're still winning new use cases in the core infrastructure, and we're, we're in trials in different, you know, different discussions with most all of them relative to AI fabric.

[Samik Chatterjee, Analyst at JPMorgan Chase & Co.]

Thanks, Chuck. Appreciate the call.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Thank you.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

All right, thank you. Next question.

[Operator]

David Vogt with UBS, you may go ahead.

[David Vogt, Managing Director at UBS]

Great. Thanks, guys, for squeezing me in. I'm not gonna belabor the point on orders, but I wanted to ask a question about AI orders, specifically in terms of your ability to ship to customers and where you are in trials. The reason why I ask is we've heard from a lot of companies in the industry that there's some supply chain considerations that are maybe causing commercial deployments and revenue ramp maybe pushed out to 2025. Just wanna get a sense for, you know, that 500 orders that you referenced in your prepared remarks, how does that flow through? Then along with that, you know, in the guidance Scott provided for fiscal 2024, how much, if any, is AI-related this year? If not, why?

[David Vogt, Managing Director at UBS]

when, you know, going back to my first point, when do we start to see it in your P&L? Thanks.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah. Yeah, we, we do not. Scott and I were both looking at each other. We don't, we don't know of any supply chain issues we have around our AI. It's, it's our standard Ethernet portfolio based on the Silicon One ASIC, and we're delivering it today. I don't think there's any supply chain issue for us on that front.

[Scott Herren, CFO at Cisco Systems]

We might be in a bit of a better position than some because it is our own ASIC.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah.

[Scott Herren, CFO at Cisco Systems]

It is our own ASIC.

[Chuck Robbins, Chair and CEO at Cisco Systems]

It's our own, yeah.

[Scott Herren, CFO at Cisco Systems]

On the FY 2024 contribution of AI, I don't have that information on top of my head.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Go ahead.

[Scott Herren, CFO at Cisco Systems]

Sorry, I didn't mean to interrupt you there.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Sorry.

[Scott Herren, CFO at Cisco Systems]

Here's what I'd say. Here's the right way to think about it, David. Those orders, what we see is within the broader hyperscaler world, which is where a lot of these AI sales are going, they're obviously in digest mode. I think you've heard that from us and all of our peers what they've bought. We do see toward the end of this calendar year, so toward the midyear of our fiscal year, we see them beginning to place orders again for delivery of product that'll happen in the second half. While I don't wanna get into parsing the guide down to that level of granularity, I think what you should expect is it to be something that we begin to see show up in the P&L late in the second half.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah, what I, what I was gonna add, David, is I think, you know, until we evolve some of the Scheduled Fabric technologies built out, they're certainly running on. They're running some of these on traditional Ethernet, which is what we're deploying today. As we get Scheduled Fabric out and these customers get more comfortable moving from InfiniBand to Ethernet, I think that's when we'll start to see the real impact of AI. Maybe it's late 2024, but I would suspect into 2025 for sure.

[David Vogt, Managing Director at UBS]

Got it. Maybe just a quick follow-up. Scott, were there orders from AI last quarter in the product order commentary? Are these basically new orders in this most recent fiscal quarter? Is that maybe the right way to think about it?

[Scott Herren, CFO at Cisco Systems]

Yeah, don't think of the $500 million as all coming in in the last quarter. Those are orders to date that we know are going into AI infrastructures. That, that's not a Q4 specific comment.

[Chuck Robbins, Chair and CEO at Cisco Systems]

By the way, a portion of that, for sure, is deployed. It's in and running.

[Scott Herren, CFO at Cisco Systems]

Yeah.

[David Vogt, Managing Director at UBS]

Got it. Okay, that's helpful. Thanks, guys.

[Scott Herren, CFO at Cisco Systems]

Yep.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

All right. Thanks, David. We have time for one last question.

[Operator]

Thank you. Simon Leopold with Raymond James & Associates. You may go ahead, sir.

[Simon Leopold, Managing Director at Raymond James & Associates]

Great. thanks for, for taking the question. I wanted to see if you could talk a little bit about what your assumptions are for your campus-related business, and I, I, I'm including both switching and wireless LAN. I assume that's roughly almost $15 billion of trailing four-quarter sales, somewhere in that ballpark. I, I've seen market research saying that business declined, some saying it's growing. Chuck, you, you highlighted that $1 billion renewal. Just trying to get my head around how material that is and what's built into the full year forecast for campus. Thank you.

[Chuck Robbins, Chair and CEO at Cisco Systems]

I'll, I'll make 2 comments, and Scott, I'll let you add to it. First of all, as, as we said, we think that as you see, you know, the Q2 calendar year share numbers come out, you'll continue to see us gain share in that space. We would expect to continue doing that. The, the, the renewal number that I threw out was close to $1 billion. Scott, I'll just let you comment on how you, how you wanna break down, or if you wanna-

[Scott Herren, CFO at Cisco Systems]

Yeah, no, I, I don't think there's a whole lot else to add.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Right.

[Scott Herren, CFO at Cisco Systems]

You know, we're encouraged by what we're seeing in campus. It's one of the things that, that we've said all along is, as the supply, the backlog begins to be delivered, you'll start to see more and more of those customer decisions that went to us actually show up in the numerator of those market share equations. That's exactly what you're seeing. I think the concern over the several quarters while we had supply constraints that maybe impacted us more than some of our peers, you should see those unwind as we can now, now deliver that backlog. The, the, you know, $1 billion of, of renewal that Chuck, the roughly $1 billion of renewal that Chuck talked about, that is a subset of our fiscal 2024 guide.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Yeah. Great.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

All right, we'll go ahead and turn it over to you, Chuck, for some closing remarks.

[Chuck Robbins, Chair and CEO at Cisco Systems]

Thanks, Marilyn. First of all, I wanna thank our teams and just say how proud I am of the work that's gone into the last couple of years to actually deliver the record results that we did. We're incredibly proud of the share gains that we expected to gain, and we are. I'm proud of the team and the new innovation that's being delivered in areas like AI and security, and across the portfolio, in observability and core networking and SP routing, all of these areas, the teams are doing an amazing job. Our portfolio is very relevant to the customer priorities that we see around the world. I've never seen such consistency around the priorities in virtually every customer around the world, and our portfolio lines up nicely against the key things that our customers are trying to achieve.

[Chuck Robbins, Chair and CEO at Cisco Systems]

I'm also very proud of the team, and Scott and the rest of the finance organization for what they've done, and we're very happy to provide clarity on our commitment to our shareholders with the operating leverage and the buybacks and our dividend as we look to the future. Thanks for joining us today.

[Marilyn Mora, Head of Investor Relations at Cisco Systems]

Thanks, Chuck. I'll go ahead and wrap us up. Cisco's next quarterly earnings conference call, which will reflect our fiscal year 2024 Q1 results, will be on Wednesday, November 15th, 2023, at 1:30 P.M. Pacific Time, 4:30 P.M. Eastern Time. This concludes today's call. Of course, if you have any further questions, feel free to reach out to Cisco's Investor Relations group, and we thank you very much for joining today's call.

[Operator]

Thank you for participating on today's conference call. If you would like to listen to the call in its entirety, you may call 866-405-7294. For participants dialing from outside the U.S., please dial 203-369-0606. This concludes today's call. You may now disconnect.

Participants

Executives

• Chuck Robbins, Chair and CEO
• Marilyn Mora, Head of Investor Relations
• Scott Herren, CFO

Analysts

• Amit Daryanani, Senior Managing Director at Evercore ISI
• Ben Reitzes, Analyst at Melius Research
• David Vogt, Managing Director at UBS
• Ittai Kidron, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.
• James Fish, Managing Director and Senior Research Analyst at Piper Sandler
• Matthew Niknam, Managing Director at Deutsche Bank
• Meta Marshall, Analyst at Morgan Stanley
• Michael Ng, Analyst at Goldman Sachs
• Samik Chatterjee, Analyst at JPMorgan Chase & Co.
• Simon Leopold, Managing Director at Raymond James & Associates
• Tal Liani, Managing Director and Senior Research Analyst at Bank of America
• Tim Long, Analyst at Barclays