Cisco Systems Q3 2025 Earnings Call Transcript

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May 14, 2025
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Operator

Welcome to Cisco's Third Quarter Fiscal Year twenty twenty five 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 introduce Sami Badri, Head of Investor Relations. Sir, you may begin.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Good afternoon, everyone. This is Sami Badri, Cisco's Head of Investor Relations, joined by Chuck Robbins, our Chair and CEO Scott Herron, our CFO and Mark Patterson, our Chief Strategy Officer. Cisco's earnings press release and supplemental information, including GAAP to non GAAP reconciliations, are available on our Investor Relations website. Following this call, we will also make the recorded webcast and slides available on the website. Throughout today's call, we'll be referencing both GAAP and non GAAP financial results.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

We will discuss product results in terms of revenue and geographic customer results in terms of product orders unless stated otherwise. All comparisons will be made on a year over year basis. Please note that our discussion today will include forward looking statements, including our guidance for the fourth quarter and fiscal year twenty twenty five. These statements are subject to risks and uncertainties detailed in our SEC filings, particularly our most recent 10 ks and 10 Q reports, which identify important risk factors that could cause actual results to differ materially from those contained in our forward looking statements. With respect to guidance, please also see the slides and press release that accompany this call for further details.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. Now I'll turn it over to Chuck.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Thanks, Sami, and thank you all for joining us today. Q3 was another strong quarter for Cisco with revenue, margins and earnings per share all above the high end of our guidance ranges. We also generated solid growth in annualized recurring revenue, remaining performance obligations and subscription revenue which all support our future performance. In addition, we received AI infrastructure orders from web scale customers in excess of $600,000,000 in Q3 bringing our year to date total to well over $1,000,000,000 surpassing our original fiscal year twenty twenty five AI order target a full quarter early. The performance of our core business continues to produce strong cash flows underpinning our commitment to deliver consistent capital returns.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

In Q3, we returned 3,100,000,000 in capital to our shareholders through share repurchases and dividends with a total of $9,600,000,000 in value returned year to date. Our overall strong performance was a result of accelerated product innovation and solid execution by our teams driving sustained demand for our technologies. Total product orders grew 20% year over year or 9% on an organic basis excluding Splunk. Despite the uncertain macro environment, this demonstrates the valuable outcomes we are delivering for customers in the era of AI. Looking at demand in more detail by customer market, I'd also like to remind you that Q3 of fiscal year twenty twenty four included six weeks of Splunk contribution.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Enterprise product orders were up 22% year over year in Q3 driven by double digit growth in The Americas and APJC. Public sector orders were up 8% with growth in all geographies as governments around the world continue to trust Cisco as their end to end technology partner. Notably, U. S. Federal orders grew double digits in Q3 after a challenging first half.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

During the quarter, our AI powered cloud managed Meraki for government networking solution also achieved FedRAMP authorization from the U. S. Government. Product orders from service provider and cloud customers continue to be strong, up 32% year over year driven by triple digit growth in web scale with three of the top six web scalers each growing orders in the triple digits. Now some color on demand from a product perspective.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Networking product orders grew double digits driven by web scale infrastructure, enterprise routing, switching and our industrial IoT products. Campus switching orders grew high single digits in Q3 against a tougher prior year compare demonstrating the continued demand for our campus portfolio to enterprise customers. We also saw triple digit sequential growth in orders for our WiFi seven portfolio in Q3. Year to date orders for our Industrial Internet of Things portfolio comprised of ruggedized catalyst products grew 35% year over year. As strategic infrastructure and manufacturing begins to onshore to The United States, Cisco is well positioned to help connect and protect these capital intensive investments at scale.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Our data center switching orders were up double digits year to date compared with the same period last year. Cisco was recently ranked as a market leader in Gartner's Magic Quadrant for data center switching. This is a testament to our ability to address the full range of data center switching use cases and our vision to simplify operations while enhancing security, which is essential for critical application deployments. As I mentioned earlier, the AI infrastructure orders we have received from web scale customers were exceptionally strong in the quarter, $600,000,000 and bringing our year to date total to well over our $1,000,000,000 target for fiscal year twenty twenty five. As expected, the product mix of these orders was more than two thirds in systems with the remainder in optics, demonstrating the growing importance of our technology to web scale customers for their AI training use cases.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

AI orders from enterprise customers continue to show momentum as this large nascent market opportunity starts to unlock. Enterprises are seeking simple, seamless, scalable and secure solutions for their AI deployments, which we are ready to deliver through our expanding partnership with NVIDIA. During the quarter, we announced our intent to create a cross portfolio unified architecture where NVIDIA will enable Cisco Silicon One to become the only third party silicon that is included as part of the NVIDIA Spectrum X Ethernet networking reference architecture. Cisco will also build interoperable systems combining NVIDIA Spectrum silicon with Cisco operating system software, allowing customers to simultaneous standardize Cisco networking and NVIDIA technology in the data center across front and back end networks. We also announced the Cisco Secure AI factory with NVIDIA which will embed security end to end from the application to the workload to the infrastructure using solutions like Cisco AI Defense and Hybrid Mesh Firewall enabling enterprise customers to build and secure data centers to develop and run AI workloads.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yesterday, we announced a new multi phased investment program in The Kingdom Of Saudi Arabia. Saudi Arabia announced a new AI company Humane and we will be a strategic technology partner contributing to their AI infrastructure build outs. This partnership aligns with Saudi's Vision 02/1930 contributing to the kingdom's transformation into a diversified digital economy and enhancing its global and regional competitiveness in the AI era. In addition, we have joined the AI infrastructure partnership alongside BlackRock Global Infrastructure Partners, MGX, Microsoft, NVIDIA, xAI and energy partners GE Vernova and NextEra Energy as it seeks to invest in secure efficient and scalable infrastructure to support AI workloads. We also announced an expanded collaboration with G42, the UA based global technology group to advance how secure AI infrastructure and innovation can be scaled across public and private sectors.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

These investments and partnerships highlight our market position as a global leader and preferred partner in AI networking solutions as well as our commitment to collaborating across the industry to create a strong global ecosystem for AI. Additionally, we expect the sovereign AI cloud opportunity to ramp in the near term and that Cisco will be a core system provider for these significant AI training and inference cluster build outs. As we look at the opportunity that AI presents for Cisco, it is worth reiterating that we frame it in three distinct but connected pillars. First, AI training infrastructure for web scale customers. Combinations of our Cisco eight ks, Silicon One, optics and optical systems are being deployed by five of the six largest webscalers.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Second, AI inference and enterprise clouds. Our accelerated innovation in hardware and software coupled with our NVIDIA partnership is designed to simplify and de risk AI infrastructure deployment for the enterprise. And third, AI network connectivity. Customers are leveraging our technology platforms to help modernize, secure and automate their network operations to prepare for pervasive deployment of AI agents and applications. With AgenTeq AI, the network is fundamentally constrained and will require ultrafast, low latency, energy efficient networks, which we can deliver.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Shifting to security, orders grew at high double digits in Q3. Our security orders included a large multi year deal with a major financial services company for Splunk security and observability platforms which was driven by our combined sales force. This was a win for Splunk from an industry competitor and is a strong proof point of our go to market synergy. This was also the largest deal ever for Splunk. Our recently launched security products of Secure Access, XDR and HyperShield collectively added over three seventy new customers in the quarter.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

The majority of our new HyperShield enterprise customers are bundling it with our new N9300 smart switch because of our unique ability to embed security directly into the fabric of the network. Now I'd like to comment on some highlights from our accelerating innovation pipeline. Safety and security will be the defining challenge of AgenTeq AI and we recently introduced several innovations designed to help security professionals harness the power of AI while keeping security at the forefront. These include Cisco XDR correlating attack telemetry across network endpoint and cloud using new AI powered solutions to empower security teams to understand complex threats in seconds. AgenTik AI developments for Cisco XDR and Splunk to simplify threat detection and response.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

A new partnership with ServiceNow which will integrate their security operations capabilities with Cisco AI Defense and the launch of Foundation AI, a team of leading AI and security experts focused on developing cutting edge technology to address the fundamental security issues of the AI era with novel open source tools including the first reasoning model to enhance security applications. Just last week, we introduced Cisco's quantum network entanglement chip, a revolutionary prototype making real world quantum networking applications possible in order to speed up the future of quantum computing. These applications will solve complex customer challenges and drive innovation across industries from supply chain optimization to accelerating drug discovery. In addition, we are using GenAI and Magentic systems across our customer experience organization to maximize customer value, deliver great experiences, boost productivity and create capacity. Today over 60% of support cases are touched by AI driven automation, which is driving up the proportion of complex cases we can solve within one day.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

In addition, low severity cases have reduced as more customers are using our AI support assistant. Also, our AI renewals agent has enabled us to increase the capacity of our renewal specialists. As you can see, we are driving an enormous amount of innovation and I look forward to showcasing even more new customer centric solutions at Cisco Live next month. Before I turn it over to Scott, I'd also like to share some important organizational announcements. After careful consideration, Scott has made the decision to retire at the end of fiscal year twenty twenty five.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

As many of you know, Scott joined us in 2020 during a period of great uncertainty around the world and he has been instrumental in driving our transition towards more software and recurring revenue. This has driven greater predictability for our business and increased shareholder value. And I want to thank Scott for all that he has done for Cisco. I am grateful for his partnership as we've managed through many unprecedented situations together. I'm happy to share that beginning day one fiscal year 20 20 six, Mark Patterson, our current Chief Strategy Officer, will serve as Cisco's new Chief Financial Officer.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

In Mark's nearly twenty five years at Cisco, he's held leadership roles in finance, strategy and operations. He also spent over a decade in sales working in roles that spanned every customer segment and geography. Most recently leading our corporate strategy, development and incubation organization, Mark's focus has been on connecting our longer term strategy and investments with our immediate and urgent growth opportunities. The breadth of his experience along with his deep knowledge of Cisco and our customers, partners and investor community uniquely position him to help accelerate Cisco's growth in this new role. I'm also excited to announce the promotion of Jeetu Patel to President and Chief Product Officer.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Under Jeetu's leadership over the past nine months, he has unified our product vision and strategy and vastly accelerated our innovation pipeline focusing on delivering even greater value for our customers and our partners. We also announced the appointment of Kevin Will, Chief Product Officer of OpenAI to Cisco's Board of Directors yesterday. These announcements further our confidence in Cisco's long term success and durability in the era of AI. To summarize the quarter, we are seeing clear demand for our technology across our customer markets. Our innovation pipeline continues to accelerate as we fuse security deep into our networking products and our strong performance is fueling our capital allocation model returning significant value to our shareholders.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Now I'll turn it over to Scott for more detail on

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

the quarter and our outlook.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Thanks, Chuck. We delivered a strong quarter with revenue and earnings per share above the high end of our guidance ranges coupled with solid margins and operating cash flow. For the quarter, total revenue was $14,100,000,000 up 11% year over year. Non GAAP net income was $3,800,000,000 and non GAAP earnings per share was $0.96 Looking at our Q3 revenue in more detail, total product revenue was $10,400,000,000 up 15% and services revenue was $3,800,000,000 up 3%.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Networking was up 8% with growth across most of the portfolio led by double digit growth in switching and enterprise routing, partially offset by a decline in servers. Security was up 54%, primarily driven by growth in our offerings from Splunk and SASE. Collaboration was up 4% driven by growth in devices, WebEx Suite and our CPaaS offerings and observability was up 24%. Looking at our recurring metrics, total ARR ended the quarter at $30,600,000,000 an increase of 5% with product ARR growth of 8%. Total subscription revenue increased 15% to $7,900,000,000 and represents 56% of Cisco's total revenue.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Total software revenue was up 25% at 5,600,000,000.0 with software subscription revenue up 26%. Total RPO was $41,700,000,000 up 7%, product RPO grew 10% and total short term RPO was $21,100,000,000 up 5%. Q3 product orders were up 20% year over year. Excluding Splunk, product orders were up 9% year over year. Looking at product orders across our geographic segments, The Americas was up 27%, EMEA was up 4% and APJC was up 21%.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

In our customer markets, Service Provider and Cloud was up 32%, Enterprise was up 22% and Public Sector was up 8%. Total non GAAP gross margin came in at 68.6%, up 30 basis points year over year, coming in above the high end of our guidance range. Non GAAP product gross margin was 67.6%, up 70 basis points, driven by productivity improvements and Splunk, partially offset by pricing. Non GAAP services gross margin was 71.3%, down 30 basis points. The impact of tariffs on our gross margin was favorable to what was estimated in the guidance we provided last quarter.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

We continue our focus on profitability and financial discipline with non GAAP operating margin at 34.5% above the high end of our guidance range. We recorded a non GAAP tax rate of 17.5% for the quarter, which was favorable by 1.5 percentage points compared to what was assumed in our guidance, primarily due to an increase in tax benefit from the foreign derived intangible income deduction and one time benefits. Shifting to the balance sheet, we ended Q3 with total cash, cash equivalents and investments of $15,600,000,000 Operating cash flow was $4,100,000,000 up 2% primarily driven by revenue and earnings growth. From a capital allocation perspective, we returned $3,100,000,000 to shareholders during the quarter comprised of $1,600,000,000 for our quarterly cash dividend and $1,500,000,000 of share repurchases with 15,400,000,000 remaining under our share repurchase program. We continue to invest organically and inorganically in our innovation pipeline.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

During Q3, we closed the acquisition of Snap Attack, which adds capability to Splunk in helping organizations power the security operations center of the future. To summarize, we had another solid quarter with top and bottom line performance exceeding our expectations, driven by strong order growth and margins. We remain focused on making strategic investments in innovation across our business to best capitalize on the significant growth opportunities we see ahead, all underpinned by disciplined spend management. It's this powerful combination that continues to fuel our strong cash flow generation as well as our ability to return significant value to our shareholders. Turning to guidance, while we've seen some progress on tariffs, there continues to be uncertainty.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Our guide assumes current tariffs and exemptions remain in place through the quarter. These include the following: China at 30%, partially offset by an exemption for semiconductors and certain electronic components Mexico and Canada at 25% for the components and products that are not eligible for the current USMCA exemptions, other countries at a base rate of 10% until the end of the ninety day pause on July 9, and then reverting to country specific reciprocal tariffs, largely offset by an exemption for semiconductors and certain electronic components. And finally, a small impact from tariffs on steel and aluminum and retaliatory tariffs. We'll continue to leverage our world class supply chain team to help mitigate the impact where appropriate through the flexibility and agility we have built into our operations over the last few years. The size and scale of our supply chain provides us some unique advantages as we support our customers globally.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

For fiscal Q4, our guidance is we expect revenue to be in the range of $14,500,000,000 to $14,700,000,000 We anticipate non GAAP gross margin to be in the range of 67.5% to 68.5%. Non GAAP operating margin is expected to be in the range of 33.5% to 34.5%. Non GAAP earnings per share is expected to range from $0.96 to $0.98 and we're assuming a non GAAP effective tax rate of approximately 18%. For the full year fiscal twenty twenty five, our guidance is we expect revenue to be in the range of $56,500,000,000 to $56,700,000,000 and non GAAP earnings per share is expected to range from $3.77 to $3.79 Sammy, let's now move into the Q and A.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Scott.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Before we start the Q and

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

A portion of the call, I'd like

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

to remind analysts to ask one question and a single follow-up question. Operator, can we move to the first analyst in the queue?

Operator

Thank you, sir. Meta Marshall with Morgan Stanley. You may go ahead.

Meta Marshall
Meta Marshall
Analyst at Morgan Stanley

Great, thanks and congrats on the quarter. Maybe the two questions for me. Just one, what are you seeing in terms of customer buying behavior right now just given the uncertainty kind of with some of the tariffs that you laid out And just whether you kind of saw any pull forward potentially in April? And then just maybe as a second question, just any commentary around public sector and federal kind of around the same questions? Thank you.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yeah. Meta, thank you. I'm going to I'll give you some commentary and then I'm going ask Scott to give you some data points on this pull ahead issue. But I'd say on the customer behavior perspective, first of all, we haven't seen any meaningful change in how they're in their purchasing. And so we haven't seen any customers really fundamentally slowing down.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

They're still committed to the technology transition. I think the AI transition is just so important that they're going to continue to spend until they just absolutely have to stop. And I think that as of right now they're still comfortable. As it relates to pull forwards, look I think I'm sure there was an order here or there from a customer who decided to pull something forward because they were concerned about tariffs. But we looked at a ton of data points, to see if we saw any signs of broad based pull ahead business, and we did not.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

And I'm going to ask Scott real quick to share some of those data points, and then I'll answer public sector.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Yes, thanks, Chuck. And I should remind you too, Meta, that we didn't motivate a lot of pull ahead by talking about price increases. If you remember, the way we talked about the impact of tariffs was we had a number of levers. We have a great world class supply chain team. Once the tariff scenario stabilizes, there are steps that we can take to mitigate it as you've seen us do with the China tariffs from the first Trump administration.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

And, only after that would we consider pricing. So we didn't build a strong motivation. But we looked at after speaking to our channel partners, who also didn't see any buy ahead or delay behavior, by the way, and our own sales team, we looked at channel inventory, which you would think would go up. It did not. It actually was down.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

We work closely with the webscalers. We understand not just what they have on order, but what they have on hand. Actually, webscaler inventory on hand went down during the quarter. We looked at Meraki activations. We know when a serial number X leaves the factory floor and when it gets activated, when we had built up some inventory at our customers, you recall that period of time between shipment and activation extended.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

It stayed right where it was, which is back in line with where it was pre pandemic, so there's no indication there. Of course, we looked at linearity and see in particular to see if we saw a spike in the third month, which if you recall, the reciprocal tariffs were announced on April 2. And so if there was some buy ahead activity, we would have seen a heavier month three. We did not see that. We saw the exact same linearity that we had seen historically there.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

And we looked at our pipeline for pull aheads or push outs, nothing out of the ordinary there. And I'd say the last metric is we look at when a customer orders today but requests a future ship date. There's always a little bit of that that happens, but we look to see was there a pattern of a lot of orders that came in with a future ship date, and there was nothing out of the ordinary either. So we really don't see any signs of any notable pull ahead or for that matter push out.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

So, Meta, let me cover the public sector. So just I know we put this in the corresponding slides, I think, but global public sector was up 8%. And if you just look at the organic growth, it was up 3% globally. We saw in The U. S, we saw strength in federal ironically.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

So we saw double digit order growth in U. S. Federal this quarter. And candidly that was with our biggest deal slipping out. So that was positive.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

I would say there still continues to be stress on the civilian side. Obviously, with agencies that have been shut down with employees who are worried about their jobs, there's a lot of just human capital concern on the civilian side. But it's also important to remember that that's about a quarter of our federal business, 75% of it is intelligence and Department of Defense. So overall, were pleased with public sector during the quarter.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Meta. Michelle, can we go to the next analyst?

Operator

Thank you. Tal Liani with Bank of America. You may go ahead, sir.

Tal Liani
Tal Liani
Analyst at Bank of America

Hi. So this year Meta is growing CapEx by 70% and you see very strong growth across the board. And the question is, I know you're only now ramping networking, but the question is whether 2025 you think is a peak year. Meaning CapEx will likely slow down materially slow down. What happens to Cisco in an environment where cloud CapEx is slowing down?

Tal Liani
Tal Liani
Analyst at Bank of America

Thanks.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Hey, Tal. Thank you. First of all, don't know that I would suggest that the cloud CapEx, particularly on a global basis, as you see the announcements that were made in The Middle East this week, we're seeing sovereign cloud strategies being built around the world. So I think that on a global basis, I don't think that will be the case. And in talking to these customers, I don't anticipate that they have a huge demand for slowing down.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

I think that you may see a different balance between their investments on capital to serve enterprise customers leveraging these models through inference and other things. But I anticipate it's going to be the 2025 is going to be a peak year. I think this has many years to run.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

And Tal, I'll just remind you on the tail end of building out all the public cloud infrastructure for training, there's a significantly larger opportunity in enterprise AI, right, as they build out the capability to do inferencing inside their own data center. So I think there's a, you know, in aggregate, the AI opportunity has several years to run at this point.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Tal. Michelle, we can move to the next analyst.

Operator

Aaron Rakers with Wells Fargo. You may go ahead.

Aaron Rakers
Aaron Rakers
Managing Director & Technology Analyst at Wells Fargo

Yes. Thanks, Sandy, and congrats on the quarter and Scott on the future retirement. I guess I'll ask my kind of two quick questions in conjunction here. So I want to I think, Chuck, in the prepared comments, you referenced a large sovereign deployment opportunity that is coming here soon. I guess the first question on that is that is that currently in your order book, the $600,000,000 you saw this last quarter?

Aaron Rakers
Aaron Rakers
Managing Director & Technology Analyst at Wells Fargo

And if not, how do you think about the size of those opportunities? And then the quick follow on is, I think this last quarter, you launched or you started shipping your 51.2t, I think it's the G200 silicon. Can you just give us an update of what you're seeing in the data center switching side? And if that really becomes a catalyst here as we look out over the next couple of quarters? Thank you.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes. Thanks, Aaron. So I think you're referencing the, humane announcement that we made yesterday or that the Saudis made early this week. They announced the creation of this company. We've been working with them on this for months.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

And the short answer is there's absolutely no orders in the $600,000,000 from them. They are just getting started. We've got a team of people returning to The Middle East next week to spend more time with them. I think it's important to note on humane, the CEO there is an individual named Tarek Amin. And just to give you some background on Tarek, he was the CTO at Reliance Jio when we built that network with them over the course of several years.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

And then he was a CEO of Rakuten when we built with him the Open RAN mobile network in Japan. And so, we've been engaged with Tarek since he actually moved into Saudi Arabia. And he is a good friend, an old friend. We've been doing large scale projects with him for a dozen years now. So he knows us.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

We know him well and we're looking forward to that opportunity. So I think that's not included in any of our forecasts from our sales teams or anything at this point. On the second point, the G200 chip, would say it is at the heart of the any of these systems orders. So I made comment that, of the 600 plus million, 2 thirds of it was systems. And those systems would be based on the G200.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

And I would tell you that right now those customers are telling us that they if we could get more capacity out, they would buy more. So it's actually doing well right now. And we've got a number of other chips that are in various stages of the process for the next generation platforms that we're also looking forward to.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Aaron. Michelle, we can move to the next analyst.

Operator

Thank you. Samik Chatterjee with JPMorgan. You may go ahead.

Joseph Cardoso
Joseph Cardoso
Vice President, Equity Research at JP Morgan

Hey, good afternoon. This is Joe Cravisseau on for Samik. Also wanted to follow-up on the Middle East announcements. Maybe two parter here is just, can you elaborate on how Cisco is looking to participate here, particularly as it relates to the portfolio? And I know it's early days, but any early insights that you can share into the timing and magnitude of these opportunities for the company as kind of investors are looking to embed it potentially into the model?

Joseph Cardoso
Joseph Cardoso
Vice President, Equity Research at JP Morgan

And then I have a follow-up. Thank you.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

You wanna go ahead and ask your follow-up, Joe, and we'll just get them both?

Joseph Cardoso
Joseph Cardoso
Vice President, Equity Research at JP Morgan

Yeah. Yeah. Sure. And and the follow-up is actually just more on the enterprise vertical, particularly campus. You know, obviously, orders are coming in good on on the enterprise vertical, But just curious if you could flesh out what are you hearing from customers on this front and the momentum that you're seeing in kind of the order backlog here ordersbacklog here and how you're thinking about the opportunity around the recovery relative to when we last spoke ninety days ago?

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Okay. So on the Middle East front, I will just tell you that, Tarek made a comment to me that they're behind and they're going to catch up. So I think they're going to spend a lot of money, and I think they're going to spend it as quickly as they possibly can. It's hundreds of billions of dollars at the end of the day, that they will be spending. If you go to the Humane, their website and scroll down, they list their initial strategic partners so you can see.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

But our discussions with them have been around the networking, compute, security, and observability. So that's that represents a pretty good opportunity for us. And I think they'll be as big as any of the major webscalers in The United States is how I would think about it. On the enterprise campus front, yes, we saw strong orders in campus switching. We saw the triple digit sequential growth in orders for WiFi seven.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

We saw really strong growth in our enterprise routing portfolio this quarter. So we still see customers investing heavily in modernizing their infrastructure. And the general belief and feedback that we're getting from these customers is, as they get ready to roll out AgenTik AI in particular, the network is absolutely going to be key, because of the real time nature of this communication. And, and they all want to make sure that while they may not know exactly what those applications are going to look like right now, they absolutely know they're going to need the most modern networks they can have. And I think that's what's driving it right now.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

You, Joe. Michelle, we can move to the next analyst.

Operator

Thank you. Michael Ng with Goldman Sachs. You may go ahead.

Michael Ng
Michael Ng
Analyst at Goldman Sachs

Hey, good afternoon. Thanks for the question and congratulations Scott on the upcoming retirement. Really appreciate all your time and help throughout the years. As it relates to my two questions, first, I was just wondering if you could talk a little bit more about the networking orders strength in the quarter. How much of that was the broad recovery and things like campus?

Michael Ng
Michael Ng
Analyst at Goldman Sachs

How much did the product cycle of WiFi seven contribute? And could we expect that to continue over the next twelve to eighteen months here or so? And then second, just a housekeeping question. I was wondering if you could just share the organic revenue growth rates for the company and the segment ex Splunk, if you have that offhand. Thank you.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Okay. I think on the networking order strength, I think it was across the board. As I was saying earlier, I think we saw it in the enterprise switching space. We saw it we saw growth in data center switching. We saw it in we saw strong growth in enterprise routing.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

We saw that triple digit sequential growth in WiFi seven. I do think to your point it's a twelve to eighteen month cycle. I think once they once customers begin this, I mean, it's a standard upgrade cycle that we see that we've seen historically. I think the way to think about it is, we've talked about the fact that there's a window and there's sort of a time frame where we typically deliver refresh products whether it's the WiFi portfolio or the campus switching portfolio. And so when that begins as well, then that will also enhance that ongoing opportunity I think as we go to as we look to the future.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

So Scott, you want to talk a little bit about organic rev?

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Yes. And Michael thanks for the comments and for the question. First of all, should say Splunk is performing in line with or actually slightly ahead of our expectations on both revenue and profitability consistent with what we told you last quarter. The integration has gone really well. The people side of integration is pretty much complete at this point across all functions.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

The product integration continues to go along well. And this is the quarter that we actually lapped the acquisition during Q3. And so at this point, it's part of the run rate. I don't really plan on breaking out organic versus inorganic from this point forward. It gets harder and harder given the level of integration we've done across the board to split that out.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

So, not really planning on giving that data point given that it's just part of our overall run rate at this point.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Michael. Michelle, we can move to the next analyst.

Operator

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

Matt Niknam
Matt Niknam
Analyst at Deutsche Bank

Hi. Thanks so much for taking this question. And Scott, thank you again for all your help over these last couple of years. My question is on web scale. So obviously you continue to see very impressive growth

Matt Niknam
Matt Niknam
Analyst at Deutsche Bank

here. Maybe Chuck if you

Matt Niknam
Matt Niknam
Analyst at Deutsche Bank

can talk to what's driving some of the sustained success, the pace of transition away from InfiniBand towards Ethernet And maybe some of the bigger differentiators that are helping you win incremental share across these hyperscalers? Thanks.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes. Thanks Matthew. Look, think it's been the intent of these customers from day one to move away from InfiniBand and the gating factor was how soon did they feel good about the technology. And they feel very good about the technology and how it's enabling them to run these training models over native Ethernet or some enhanced Ethernet that we are delivering. I think that we've talked over the last few years about their desire to have silicon diversity, which we think was one of the key reasons that we got in originally and now we're delivering high quality products, in the timeframe they need them.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

If you look at what they're looking for in these products from their partners, there's really sort of you have a system that has software and has silicon and then other components. And the real high value pieces of this are the operating system and the silicon. And as many of them are transitioning hard into running their own proprietary operating systems on these platforms, it's imperative that you have silicon if you want to be competitive long term in this space. And so we're very fortunate that we made the acquisition in 2016. We have a great team that's been developing Silicon One.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

They're very close to these customers. They work with them every day. And I think the silicon is the key differentiator that is that's really I mean, we're delivering high quality systems and everything else that they want, the services, the experience, the supply chain, all those things that matter deeply. But at the end of the day, if we didn't have the silicon, it would probably make it virtually impossible for us to be successful long term here.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Matthew. Shal, can we move to the next analyst?

Operator

Amit Daryanani with Evercore ISI. You may go ahead, sir.

Amit Daryanani
Senior Managing Director - Equity Research at Evercore

Yes. Thanks a lot for taking my question. I guess I have two as well. Starting off, Doug, AI orders at $1,000,000,000 It came in, I think, a quarter ahead of which you both said expected, and it looks like you're seeing some continued momentum as you go forward with sovereign and enterprise that you talked about. I'm just wondering how should we think about the growth rates as we move forward on AI orders or AI revenues?

Amit Daryanani
Senior Managing Director - Equity Research at Evercore

It would be helpful just kind of phrase that frame that out a little bit in terms of the forward growth rates. And then if I could just follow-up for Scott. Your July guide, Scott, if I'm not mistaken implies revenues are up 3%, four % sequentially, but operating margins are down 50 basis points. Maybe just flush out why the margins are coming down in July while revenues are going up? And best of luck on your retirement as well.

Amit Daryanani
Senior Managing Director - Equity Research at Evercore

Thank you.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Thanks, Amit. On the AI orders, how do you think about the growth? I would say just one thing to remember is that these are big customers that are and these orders are non linear in nature. So we'll see how it goes. But I mean last quarter we did $350,000,000 or something like that.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

This quarter we exceeded 600,000,000 And as I said earlier, if we could actually if we could increase capacity they would take more. So I think if we're able execute and increase capacity, we should be able to continue to see this ramp as long as we're delivering and executing, which is one thing I've said all along is we have to execute because if we miss with these customers, then we sit on the sidelines for a while. So we the teams are working really hard and I think that's how I think about it. It's nonlinear orders and as long if we can continue to increase the capacity then we'll continue to see that business improve. Scott, you want to talk about July?

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Sure. Yes. And you're doing the math right, Amit. First of all, thanks for what you said. You're doing the math right on margins.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

The biggest difference you can see it's actually in the gross margin line and that falls through to the op margin line. And that's really a full quarter of and I laid out the assumptions for you in the opening commentary on tariffs. It's a full quarter of the tariffs being in effect and we've reflected the full cost without mitigation. And that's the big driver that we see sequentially going from Q3 to Q4. Still feel good about putting up the midpoint of the guide at 11% EPS growth.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Amit. Michelle, we can move to the next caller.

Operator

Thank you. Simon Leopold with Raymond James.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

Thank you very much for taking the question. I'll ask, both upfront. The first one is, Chuck, I think last quarter you had sort of alluded to an upcoming campus refresh, and I I would think Cisco's sort of do. What I'd like some help with is is understanding the maybe historic perspective of when you've when you've had these refreshes, how to think about that. Because when I reflect on the the last one, 2017, '20 '18, that occurred when you were shifting customers to subscription.

Simon Leopold
Simon Leopold
Managing Director at Raymond James Financial

So I I feel like that's a tough metric to use to to understand the potential. And then the follow-up may be a a bit simpler, which is, how do we think about the impact of tariffs understanding they're changing every day? But given everything we know, after July 9, what would be the effect of tariffs based on, the July 9, end of the pause? Thank you.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Simon, I think your first of all, I think your point relative to the 2017 kickoff of the campus refreshes is a very valid one. So it's hard to say. We've also seen some strength over the last twelve months in the Enterprise Campus business. So here's what I would tell you though, as we look to really drive this over the next twelve, twenty four months, I think that what's most important to our customers right now is that we embed security deep into the network. And so what you're going to see is you're going to see a focus on enabling AgenTik AI and enabling security and security services in the network so that our customers can do this in line, which is going to be necessary for us to solve the AI problem.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

I'll tell you, had a discussion with a CISO of a Fortune 100 company a couple of weeks ago. G2 and I were together. And we started talking about security, she stopped us and said, listen, if you can't paint a picture for me or define an architecture for me, multiyear architecture that has me removing every physical firewall from my infrastructure, then I don't wanna talk to you. If it's not embedded in the traffic flows, it's never to happen. It's not going to work.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

And so what I would tell you on this is just envision that we're going to deploy security everywhere else through the network infrastructure. And that plus AI, I think, will give customers reasons to really look at these platforms.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Yes. And Simon on your second question on the impact of tariffs after July 9, I mentioned in the opening commentary that we've built into the our forecast that underpins the guide for Q4 an expectation that on July 9, those that pause ends and we go back to the reciprocal tariffs that were announced on April 2 with the two exemptions, the USMCA exemption still in place and the semiconductor and certain electronic component exemptions still in place. So we've reflected that in the guide, for Q4. I think it's a little bit hard right now to predict what is going to happen on July 9 and what agreements get put in place between now and then, but just wanted to protect the downside in the guide.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

You, Simon. Michelle, we can move to the next analyst.

Operator

Thank you. James Fish with Piper Sandler. You may go ahead, sir.

James Fish
James Fish
MD & Senior Research Analyst at Piper Sandler Companies

Hey, guys. Nice quarter. And and Scott, congrats on on your upcoming here. And look, don't want to rain on the freight here, but if I look at networking here, it returned to growth, but it was also against a very easy compare and even still down versus a couple of years ago. If AI really isn't substitutionary of existing, you know, non AI networking real estate with some of these web scales and enterprise is growing, the rates are calling out, why should why isn't this sort of growing faster, than than even the 8% on on the comp here?

James Fish
James Fish
MD & Senior Research Analyst at Piper Sandler Companies

And then just following up on on Simon's question before as as my follow-up. Can we just get an update as to the exposure between data center versus campus within within networking and how we should think about the price per port kind of playing out here as we're seven, eight years now down the road? Thanks, guys.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

On the

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

first one, I think the net the short answer is that most of this AI infrastructure has not begun to flow through revenue yet. Scott, don't if you want to comment.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

No, that's right.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

We said all along that we thought the when we put the $1,000,000,000 target out for the year that was a sales target not a revenue target. But we said we thought that would begin to convert to revenue in the second half of the year. And we saw that again the first piece of that in Q3 and we expect to see a bit of it again in Q4.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes. And I think on the data center versus campus, I mean, clearly the data center with the higher speeds, you're going to see a higher per port cost, but you're going to see much higher volumes in the campus. So I think they sort of normalize each other out over time.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

You, Jim. Michelle, we can move to the next analyst.

Operator

Thank you. David Voat with UBS.

Andrew Spinola
Andrew Spinola
Director at UBS Group

Thank you. This is Andrew for David. I wanted to ask a question about the texture of the $600,000,000 of AI orders. You mentioned that they tend to be nonlinear. They're very large customers.

Andrew Spinola
Andrew Spinola
Director at UBS Group

And I'm wondering if you're starting to see bigger orders as a large component of that $600,000,000 with the customers where you're having the most success? Or are you really seeing sort of a diffused kind of large growing orders across a number of customers that you mentioned you had three growing triple digits? And the follow-up question I wanted to ask is just I'm not sure if

Andrew Spinola
Andrew Spinola
Director at UBS Group

I missed it, but could you

Andrew Spinola
Andrew Spinola
Director at UBS Group

give an estimate of roughly what you think the impact of tariffs are in your guidance for Q4 for gross margin? Thanks.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes, Andrew, I think you nailed it. You almost answered the question for us. I mean, have three of the six that grew triple digits. So I think it's fairly balanced. I will tell you that we when I would look at these customers, we're seeing acceleration across all of them.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

So it's all positive, but there are in this case, we had three that were just super high growers. Next quarter, maybe a different three. So, we'll see,

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

but it's pretty balanced.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

And then on your question on the tariff impact in the guide, what I wanted to do is make sure you understood the assumptions that were built into it. So we walked through those, China at 30% Mexico and Canada, where it's not eligible for the USMCA exemption at 25%, ten % everywhere else until July 9 and then reverting back to the reciprocal tariffs and then a small impact on us for the tariffs on steel and aluminum retaliatory. That's all built into the guide. I haven't broken out and quantified the dollar value that goes with that.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

And I'm a little reluctant to because it's the puck keeps moving on this. What I wanted you to understand is that everything that we know today, impact of those has been built into the guide for Q4.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Andrew. Michelle, we can move to the next analyst.

Operator

Thank you. Karl Ackerman with BNP Paribas. You may go ahead, sir.

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

Yes. Thank you. Yes. Thank you.

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

I have two, and I'll just ask them at the same time as well, please. So the extended partnership with NVIDIA is an endorsement of your Silicon One family and certainly underscores your opportunity as enterprises deploy AI compute. I was hoping you could quantify, your AI orders for enterprise that are incremental to the billion of AI order target you have for cloud. And then second, when might Silicon One offer co packaged optic solutions as you seek to broaden your data center switch offering? Thank you.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes. Thanks, Karl. Would say first of all, I'd say the NVIDIA partnership, we've had a couple of phases of the announcements. And a lot of the solutions that we're going to deliver to the enterprise are still to be delivered. So most of them start rolling out like sixty days from now.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

And then they'll just then they'll be flowing after that. So first thing I want to just clarify is we haven't seen a lot of upside yet in the enterprise from that. I would say the enterprise AI orders is a little more difficult for us to flag these, but we have been trying to do so, so that we had a baseline. And what I will tell you is that we're definitely seeing acceleration. It's in the hundreds of millions of dollars, not in the billions yet that we're seeing.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

But again, there's a lot of dependence on the sales force flagging these things properly when you get into that scale with the number of enterprise customers that we have. On the Silicon One CPO question, I think it's important to remember that we demonstrated CPO in 2023. And at the time, there wasn't a significant amount of customer demand for it for lots of reasons. But we have a team of people that are working on it. We're we will embrace it.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

I think that it it's going be driven by customer desire. And I think that's going to be driven by a combination of power benefit as well as speed requirements. And as soon as customers are asking for it, we'll be first in market ready to deliver it.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Karl. Michelle, we can move to the next analyst.

Operator

Thank you. Atif Malik with Citi. You may go ahead.

Adrienne Colby
Adrienne Colby
Assistant Vice President at Citi

Hi, it's Adrienne Colby for Atif. Thank you for taking the question. It's been a while since you talked about your AI pipeline versus your AI orders. So I was hoping you could update us on what that part of the funnel is looking like. And secondly, I was hoping with the departure of Gary Steele, if you could update us on the search there for a new head of go to market.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes. So we, correct me if I'm wrong, Scott, but we don't give out pipeline for AI at this point. So we did that a long time ago. And again, it was the $1,000,000,000 target in the pipeline stuff was really to give you all more confidence that we were serious in this space. And I think the results have now said that these customers are taking us seriously.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

So we won't be doing all that on an ongoing basis. And then, yeah, we named a new Head of Go to Market, Oliver Tusick, who was most recently running our Europe, Middle East, Africa region and before that was running our global partner organization. When before he came to Cisco, he was a CEO of a partner. So he has a really deep understanding of our go to market model. And he we announced him a week ago.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes, a week ago.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Yes.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yes. Thank you.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Adrian. Michelle, we can move to the next analyst.

Operator

Thank you. Sebastian Najee with William Blair. You may go ahead.

Sebastien Naji
Research Analyst - Technology, Media & Communications at William Blair

Yes. Thanks for taking the question. I wanted to ask about your networking business and in particular your hyperscaler customers and in particular the usage of the white box. Given that Cisco can't provide that broad range of offerings from the chip to white box and full system, can you maybe just comment on whether you see white box eating up a bigger part of the spending pie? And is it AI that's driving that share shift or something else that's happening?

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Well, what I would say is that I don't think we've seen a meaningful shift between what they buy from us versus when they buy white boxes. To your point, they want to buy white boxes, we can work with them to actually integrate our silicon and actually manage the process for them and help deliver that product. But we see the predominance is still buying systems. And I think it's just up to every hyperscaler has a different set of kind of issues that lead them to the answer. And and in some cases, of them have had an answer two years ago that now has changed, they're doing it a different way.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

So I'm not sure there's a real clean answer across the the customer base.

Scott Herren
Scott Herren
EVP & CFO at Cisco Systems

Yes. And just a quick reminder, Sebastien, we said this earlier, but of the more than $600,000,000 in orders that we took during Q3, two thirds of those were systems as opposed to optics and optical. So we're seeing the shift to systems that we had predicted, in the Q2 call.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Sebastien. I'm now going to hand it over back to Chuck for some closing remarks.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Yeah. Let me just thank all of you again for joining and reiterate that how pleased I am with our progress and how proud I am of what our teams have done. I'd also like to once again thank Scott. He's been a great partner for me for the last five years, helping drive the transition and as I said earlier, dealing with some pretty complex situations over the years. I'm excited to have Mark step into the role.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

Mark and I have worked closely together for eighteen years. So we he has a great set of experiences here at Cisco and will bring a lot into the role. Thank you, Chuck. As we look ahead, I think the AI opportunity for us, we believe, is strong one. We think we're well positioned.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

We believe that because we from a technology and a portfolio perspective, we play across the full stack. We have networking. We have security. We have silicon, which I think are all very important. We have secure AI solutions that we're delivering into the marketplace.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

We also have the partnerships and the investments. You know, we have the NVIDIA partnership, which is delivering critical solutions for our customers. This week, we announced the Humane partnership, the AIP investments, the G42 partnership, and there are more to come. And I think the other thing we have is we have global presence. We have customer trust.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

We have the ability to understand both the cloud customers as well as the enterprise customers and the public sector customers. So when it gets when these sovereign clouds are being discussed, we have a unique perspective across all of those segments. We understand what they need in long term partnerships. We have a great team that are delivering right now, strong execution, great results. I'm really proud of what they've done.

Chuck Robbins
Chuck Robbins
Chair and CEO at Cisco Systems

So I look forward to talking to you soon. And Sammy, I'll hand it back to you.

Sami Badri
Sami Badri
Head of Investor Relations & Strategic Finance at Cisco Systems

Thank you, Chuck. Cisco's next quarterly call, which will reflect our fourth quarter and fiscal year twenty twenty five results, will be on Wednesday, 08/13/2025 at 01:30PM Pacific Time, four thirty pm Eastern Time. This concludes today's call. If you have any further questions, please feel free to contact the Cisco Investor Relations department, and we thank you very much for joining the call today.

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 70258. For participants dialing from outside The U. S, please dial (203) 369-3998. This concludes today's call.

Operator

You may disconnect at this time.

Executives
    • Sami Badri
      Sami Badri
      Head of Investor Relations & Strategic Finance
    • Chuck Robbins
      Chuck Robbins
      Chair and CEO
    • Scott Herren
      Scott Herren
      EVP & CFO
Analysts
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Key Takeaways

  • Cisco’s Q3 results beat the high end of guidance, with revenue of $14.1 billion (up 11% YoY), non-GAAP EPS of $0.96, and gross and operating margins above forecast.
  • Web-scale AI infrastructure orders reached $600 million in Q3 and topped $1 billion YTD—surpassing the full-year AI order target a quarter early—while enterprise AI orders continue to build momentum.
  • Recurring revenue remains a growth driver: ARR hit $30.6 billion (up 5%), subscription revenue rose 15% to $7.9 billion, and software revenue climbed 25% to $5.6 billion.
  • Cisco deepened its AI ecosystem with a unified architecture alongside NVIDIA (integrating Cisco Silicon One into Spectrum X), launched the Secure AI Factory, and unveiled a prototype quantum network entanglement chip.
  • The company returned $3.1 billion to shareholders in Q3 (totaling $9.6 billion YTD) and announced CFO Scott Herron’s retirement, with Mark Patterson named his successor effective FY 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
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