Cisco Techniques, Inc. CSCO reported its fourth-quarter monetary outcomes after Wednesday’s closing bell.
Beneath are the transcripts from the This autumn earnings name.
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OPERATOR:
Welcome to Cisco’s fourth quarter and monetary 12 months 2025 monetary outcomes convention name. On the request of Cisco, as we speak’s convention is being recorded. If in case you have any objections, it’s possible you’ll disconnect now. I want to introduce Samy Badri, Head of Investor Relations. Sir, it’s possible you’ll start.
Samy Badri (Head of Investor Relations)
Good afternoon everybody. That is Samy Badri, Cisco’s Head of Investor Relations and I’m joined by Chuck Robbins, our Chair and CEO, and Mark Patterson, our CFO. Cisco’s earnings press launch and supplemental info together with GAAP to non GAAP reconciliations can be found on our investor relations web site. Following this name, we may even make the recorded webcast and slides accessible on the web site. All through as we speak’s name, we’ll be referencing each GAAP and non GAAP monetary outcomes. We are going to talk about product ends in phrases. Of income and geographic and buyer outcomes when it comes to product orders. Except acknowledged in any other case, all comparisons can be made on a 12 months over 12 months foundation. Please word that our dialogue as we speak will embody ahead trying statements together with our steerage for the primary quarter and monetary 12 months 2026. These statements are topic to dangers and uncertainties detailed in our SEC filings, significantly our most up-to-date 10K and 10Q experiences which establish essential danger elements that might trigger precise outcomes to vary materially from these contained in our ahead trying statements with respect to steerage. Please additionally see the slides and press launch that accompany this name for additional particulars. Cisco won’t touch upon its monetary steerage in the course of the quarter except it’s performed via an specific public disclosure. Now I’ll flip it over to Chuck.
Chuck Robbins (Chair and CEO)
Thanks Sami, and thanks all for becoming a member of us as we speak. We had a robust near fiscal 25, delivering income and gross margin on the excessive finish of our steerage ranges for the fourth quarter. Continued working leverage throughout our enterprise produced robust profitability with earnings per share above the excessive finish of our steerage. As well as, we generated stable development in annualized recurring income, remaining efficiency obligations and subscription income which gives a robust basis for our future efficiency. The worthwhile development of our enterprise continues to provide robust money flows, supporting our dedication to ship constant capital returns. In This autumn, we returned $2.9 billion in capital to our shareholders via share repurchases and dividends, bringing the full return in fiscal 25 to $12.4 billion in worth or 94% of free money stream, surpassing the 12.1 billion Cisco return to shareholders in fiscal 24. Total, our FY25 efficiency has established a stable basis as we flip our focus to delivering Cisco’s strongest 12 months but in fiscal 12 months 26. As indicated in our steerage. As we transfer into the subsequent section of AI with brokers autonomously conducting duties alongside people. The capability necessities of the community can be compounded to accommodate each unprecedented ranges of community visitors and an growing menace panorama. Based on our survey of IT networking leaders, 97% of companies consider they should improve their networks to efficiently deploy AI. Having refreshed virtually our complete product portfolio with business main networking Techniques powered by SiliconOne AI, native safety options and software program working programs, Cisco is properly positioned to supply the crucial infrastructure wanted for the AI period. Now let me touch upon the demand we noticed in This autumn, beginning with report AI infrastructure orders obtained from net scale clients. These orders exceeded 800 million within the quarter, bringing the full for fiscal 12 months 25 to over 2 billion, greater than double our unique $1 billion goal acknowledged in This autumn of fiscal 12 months 24. This demonstrates the simple functionality and relevance of our expertise for a number of again finish use instances with a few of the most technologically superior clients. Total, whole product orders in This autumn grew 7% 12 months over 12 months with stable development throughout all geographies. Regardless of a posh atmosphere demonstrating the precious outcomes we proceed to ship for patrons worldwide. Enterprise Product orders have been up 5% 12 months over 12 months in This autumn as typical for the fourth quarter, we closed a number of very massive offers with main enterprises throughout completely different industries who’re compounding the worth of their investments by leveraging the complete breadth of our expertise platforms. We now have a slide in our earnings presentation that highlights each the breadth of Cisco’s attain via eight determine or bigger offers and the flexibility of options tailor-made to our clients wants. Public sector orders have been down 6% 12 months over 12 months in This autumn in contrast with a really robust fourth quarter in FY24 when orders grew double digits 12 months over 12 months. That mentioned, total public sector demand grew sequentially consistent with regular seasonality. Product orders from service supplier and cloud clients proceed to be very robust, up 49% 12 months over 12 months pushed by triple digit order development in net scale for the fourth consecutive quarter with 4 out of the highest six net scale clients every rising orders within the triple digits. In truth, two net scale clients every positioned whole orders of over $1 billion for networking, safety, collaboration and observability in FY25. Demand from telco and cable clients was additionally robust in This autumn with orders rising greater than 20% 12 months over 12 months. Now some coloration on demand for our core networking and safety options. Networking product orders grew double digits in This autumn, marking the fourth consecutive quarter of double digit development pushed by net scale infrastructure switching, enterprise routing, industrial IoT and servers. There may be robust curiosity from clients within the new household of Cisco Cat 9K good switches together with a totally refreshed lineup of extremely safe routers, wi-fi entry factors and industrial IoT units that are function constructed for the AI prepared campus and department. Our new good switches are powered by SiliconOne and ship enhanced efficiency, quantum safe networking and radically simplified cloud, native and AI pushed operations all supporting the brand new realities as AI adjustments how we work and collaborate. The introduction of our new switches marks the start of a serious multi 12 months refresh cycle alternative for Cisco’s massive put in campus switching base. Orders for our Industrial IoT portfolio comprised of ruggedized Catalyst merchandise grew double digits for the fifth consecutive quarter and we see stable demand indicators persevering with into FY26 as international locations all over the world are committing to US home investments as a part of their commerce agreements. As extra strategic infrastructure and manufacturing is introduced onshore to the USA, Cisco is properly positioned to assist join and shield these capital intensive investments at Scale As I discussed earlier, the AI infrastructure orders we obtained from net scale clients have been as soon as once more exceptionally robust, exceeding 800 million within the quarter. As anticipated, the product combine of those orders was greater than 2/3 in programs with the rest in optics within the enterprise particularly, whereas nonetheless early AI orders are ramping and we now have a rising pipeline within the tons of of hundreds of thousands as these clients look to Cisco to supply easy, scalable and safe options for the AI period. Our increasing partnership with Nvidia additionally positions us to ship on these new calls for with accomplished integrations of Cisco Nexus switches with Nvidia’s Spectrum X structure providing low latency excessive pace networking for AI clusters. Moreover, the Cisco Safe AI Manufacturing unit with Nvidia gives a trusted blueprint for constructing safe AI prepared information facilities for enterprises, sovereign cloud suppliers and newly rising NEO cloud suppliers. We additionally see the chance with NEO cloud suppliers ramping with a number of Giant offers in This autumn not included within the beforehand talked about AI infrastructure orders. Our newly cast Center east strategic partnerships together with Humane G42 and Stargate UAE are all progressing as deliberate and we count on the sovereign AI alternative to construct momentum within the second half of fiscal 12 months 26. We consider Cisco can be a core system supplier for these important AI coaching and inference cluster construct outs and integral to their growth and eventual hyperscaling. As we glance holistically on the AI alternative for Cisco, we body it into three distinct however related pillars. First, AI Coaching infrastructure for net scale clients Combos of our Cisco 8K, silicon one optics and optical programs are being deployed by the most important net scalers and we count on demand for these applied sciences from NEO cloud suppliers and sovereign clients to extend in fiscal 12 months 26. Second, AI inference and enterprise Clouds Our accelerated innovation in {hardware} and software program coupled with our Nvidia partnership is designed to simplify, speed up and de danger AI infrastructure deployments for the enterprise and third, AI Community connectivity Prospects are leveraging Cisco platforms to assist modernize, safe and automate their community operations to organize for pervasive deployment of AI brokers and functions. As we transfer in direction of agentic AI and the demand for inferencing expands to the enterprise and finish person networking environments, visitors on the community will attain unprecedented ranges. Community visitors won’t solely enhance past the peaks of present chatbot interplay, however will stay persistently excessive with brokers in fixed interplay. We now have a slide illustrating this new visitors mannequin in our earnings presentation accessible on our web site. As brokers achieve autonomous resolution making and motion capabilities, safety can be much more crucial to make sure they function reliably and safely. As a trusted accomplice for enterprises, hyperscalers, NEO cloud and sovereign cloud suppliers alike, Cisco has the chance to guide this generational transition in networking and safety and supply the crucial infrastructure wanted for the AI period. Now shifting to safety, we recorded mid single digit development in orders in This autumn. Splunk and Cisco synergies delivered a 14% 12 months over 12 months enhance in new logos for Splunk in This autumn, demonstrating the good thing about our cross promoting motions and joint innovation. Our new and refreshed merchandise together with Safe Entry, XDR, HyperShield and AI Protection additionally proceed to ramp and added 750 new clients collectively and within the quarter. The overwhelming majority of our new hypershield enterprise clients are bundling with our N9300 good change which allows them to embed safety instantly into the material of the community. We consider that agentic AI can solely be secured by fusing safety deep into the community and that solely Cisco can ship this functionality. Now I’d prefer to touch upon our accelerating innovation pipeline at Cisco Dwell Us. In June we delivered our largest innovation payload up to now, asserting over 20 new buyer centric choices throughout our portfolio to assist our clients construct AI prepared information facilities and future proof their workplaces with a foundational layer of digital resilience. You possibly can see the complete checklist of product launches in our slide deck, however I’d like to focus on our agentic ops that are already resonating with clients. Cisco AI Canvas is a revolutionary generative person interface for actual time collaboration between community and safety groups optimized for each human and agent interplay. Powered by Cisco’s Superior Deep Community mannequin, LLM AI Canvas unifies actual time telemetry throughout varied platforms to radically simplify IT operations and speed up troubleshooting all of our new improvements launched in FY25, spanning core networking merchandise primarily based on Cisco, Silicon One, superior safety applied sciences and unified administration instruments are designed on a basis of AI, additional enhancing Cisco’s platform benefit the place each expertise doesn’t simply add worth by itself, however compounds the worth of our clients current investments we proceed to make use of Genai and Agentix programs throughout our buyer expertise group with issues like companies as code and AI brokers for finish product help, renewals and adoption. In the present day over 2/3 of help instances are touched by AI and automation, which will increase the proportion of complicated instances we will remedy inside at some point. We’re additionally seeing elevated utilization of Cisco’s personal proprietary AI utility internally, with extra superior use instances rising throughout engineering, gross sales, operations and our folks, coverage and function group leading to significant productiveness beneficial properties for our groups. To summarize, we’re seeing clear demand for our expertise throughout buyer markets along with expanded alternatives. As we transfer in direction of agentic AI, we’re innovating quicker than ever earlier than, making AI foundational in our designs, fusing safety deep into our networking merchandise and offering operational simplicity for our clients. And our robust efficiency is fueling our capital allocation mannequin, returning important worth to our shareholders whereas positioning our enterprise for fulfillment in fiscal 26. Earlier than I shut, I’d prefer to as soon as once more thank Scott Herron for his management and partnership over the past 5 years. Scott has been instrumental in driving our transition to extra software program and recurring income, which has pushed higher predictability for our enterprise and elevated shareholder worth. We want you all the very best in your retirement. I’d additionally prefer to take a second to thank our groups for his or her onerous work to shut out the 12 months, for executing with urgency as one Cisco, and most significantly for his or her unfailing concentrate on delivering priceless outcomes for our clients. Now I’ll flip it over to Mark for extra element on the quarter and our outlook.
Mark Patterson (Chief Monetary Officer)
Thanks Chuck. We delivered a robust quarter with income and non GAAP gross margin and working margin on the excessive finish of our steerage vary and earnings per share above the excessive finish of our steerage coupled with stable working money stream for the quarter, Complete income was $14.7 billion up 8% 12 months over 12 months. Non GAAP internet revenue was 4 billion up 12% and non GAAP earnings per share was $0.99 up 14%, demonstrating good working leverage with EPS development outpacing income development. Earlier than we dive into the small print, it’s price reiterating as a reminder that we had a full 13 week contribution from Splunk in Q4FY24 final 12 months, so Our reported 12 months over 12 months development charges are absolutely comparable this quarter. Taking a look at our This autumn income in additional element, whole product income was 10.9 billion, up 10%. Companies income was 3.8 billion flat 12 months over 12 months. Networking was up 12% with development throughout a lot of the portfolio led by double digit development in Web infrastructure and enterprise routing in addition to stable development in switching partially offset by a decline in servers. Safety was up 9%, primarily pushed by development in our choices from Splunk and SASE. Collaboration was up 2%, pushed by stable development in units. Observability was up 4%, led by robust development in Splunk and Thousand Eyes. Taking a look at our recurring metrics, Complete RPO was 43.5 billion, up 6%. Product RPO grew 8% and whole quick time period RPO was 21.7 billion, up 4%. Complete ARR ended the quarter at 31.1 billion, a rise of 5% with product ARR development of 8%. Complete subscription income elevated 3% to $7.9 billion and represents 54% of Cisco’s whole income. Complete software program income was up 5% at $5.6 billion with software program subscription income additionally up 5%. This autumn product orders have been up 7% 12 months over 12 months. Taking a look at our product orders throughout geographic segments, The Americas was up 5%, EMEA was up 10% and APJC was up 7%. In our buyer markets, service supplier and cloud was up 49%, enterprise was up 5% and public sector was down 6%. Complete non GAAP gross margin got here in at 68.4%, up 50 foundation factors 12 months over 12 months. Coming in on the excessive finish of our steerage vary. Non GAAP product gross margin was 67.5%, up 50 foundation factors, pushed by productiveness enhancements. Non GAAP companies gross margin was 70.8%, additionally up 50 foundation factors. Our whole gross margin included a small affect from tariffs which was barely favorable in comparison with our estimate that was included in our steerage. We proceed our concentrate on profitability and monetary self-discipline with non GAAP working margin at 34.3%. On the excessive finish of our steerage vary, our non GAAP tax price was 18.1% for the quarter. Shifting to the steadiness sheet, we ended This autumn with whole money money equivalents and investments of 16.1 billion. Working money stream was 4.2 billion, up 14%, primarily pushed by our income and earnings development from a capital allocation perspective. We returned $2.9 billion to shareholders in the course of the quarter, comprised of 1.6 billion for our quarterly money dividend and 1.3 billion of our share repurchases with 14.2 billion now remaining underneath our share repurchase program. Turning to the complete fiscal 12 months, income was $56.7 billion, up 5% whole. Non GAAP gross margin was 68.7%, up 120 foundation factors. On the underside line, non GAAP internet revenue was 15.2 billion flat 12 months over 12 months. Non GAAP earnings per share was $3.81 which was up 2%. Working money stream was 14.2 billion, up 30% in comparison with FY24. Money stream development from the complete 12 months was positively impacted by some massive tax funds in early FY24 that didn’t repeat. In FY25 we returned 12.4 billion in worth to our shareholders via money dividends and share repurchases. This was comprised of 6.4 billion in quarterly money dividends and 6 billion of share repurchases. We elevated our dividend for the 14th consecutive 12 months in FY25, reinforcing our confidence within the power and stability of our ongoing money flows. To summarize, we had a stable fiscal quarter and 12 months with prime and backside line efficiency beating and exceeding our expectations pushed by robust order development and margins. For the complete fiscal 2025 we delivered report non GAAP working revenue and margin, demonstrating our skill to supply working leverage whereas driving robust prime line development. We stay targeted on making strategic investments in innovation to capitalize on the numerous development alternatives we see forward. This can proceed to be underpinned by disciplined spend administration and it’s this highly effective mixture that continues to gasoline robust money stream and our skill to return important worth to our shareholders. Turning to Steering Whereas we now have some readability on tariffs, we’re nonetheless working in a posh atmosphere. Our Q1 and monetary 12 months 2026 information assumes present tariffs and exemptions stay in place via the top of fiscal 2026. These embody the next China at 30% partially offset by an exemption for semiconductors and sure digital elements Mexico at 25% and Canada at 35% for the elements and merchandise that aren’t eligible for the present USMCA exemptions. Different international locations reverted to nation particular reciprocal charges however largely offset by an exemption for semiconductors and sure digital elements and at last, a small affect from tariffs on copper, metal and aluminum and retaliatory tariffs. We are going to proceed to leverage our world class provide chain group to assist mitigate the affect of tariffs the place applicable via the flexibleness and agility we now have constructed into our operations over the previous few years. The dimensions and scale of our provide chain present us with Some distinctive benefits as we help our clients globally. Wanting forward, you’ll be able to count on us to proceed our concentrate on sturdy development with monetary self-discipline driving working leverage and continued capital returns. Our fiscal Q1 steerage is as follows. We count on income to be within the vary of $14.65 billion to $14.85 billion. We anticipate non GAAP gross margin to be within the vary of 67.5% to 68.5%. Non GAAP working margin is anticipated to be within the vary of 33% to 34%. Non GAAP earnings per share is anticipated to vary from $0.97 to $0.99. We’re assuming a non GAAP efficient tax price of roughly 19% for fiscal 12 months 26. Our steerage is as follows. We count on income to be within the vary of $59 billion to $60 billion. Non GAAP earnings per share is anticipated to be within the vary from $4 to $4.06. Sammy, let’s now transfer into the Q and A.
Samy Badri (Head of Investor Relations)
Thanks, Mark. Earlier than we begin the Q and A portion of the decision, I want to remind analysts to ask one query and a single observe up query. Michelle, can we transfer to the primary analyst within the queue?
OPERATOR
Thanks. Aaron Rakers with Wells Fargo. It’s possible you’ll go forward.
Wells Fargo Fairness Analyst
Yeah, thanks for taking the query. I assume my first query is, you. Know, your steerage and given the commentary across the AI alternative and reflective of sovereign beginning to kick in. Into the second half of the fiscal. 12 months, simply form of taking the midpoint. It will appear to imagine you’ve received. Some deceleration of development from, name it, , 6.5% guided for fiscal first quarter to about 4.5% going into the remaining three quarters. I’m curious, does that mirror conservatism? Is there any change within the demand.
Chuck Robbins (Chair and CEO)
Surroundings that you just’re factoring in? I’m simply form of curious how we bridge perhaps that deceleration via the remaining quarters of the fiscal 12 months. Hey, Aaron, thanks. So let me simply say that the AI alternative is clearly one which we’ve been happy with our execution on. And as we glance out at you, I believe the dynamic that you just’re speaking about is strictly related to only 12 months over 12 months comps later within the 12 months. I don’t assume it’s received, it hasn’t, it’s not meant to sign any change in demand or something that we predict. I believe, , one of many questions that I count on is, , does the campus refresh start to kick in and may that be a giant income driver in subsequent fiscal 12 months. And , if you concentrate on the campus, the Cat 9K is in 12 months eight of this transition and many clients will take a number of time to guage that and have a look at these merchandise earlier than they start to deploy them. So we predict that’s going to kick in subsequent 12 months as properly. And we’re happy with the progress we made on AI, however I believe the annual development is basically associated to comps. Mark, you may have something so as to add?
Mark Patterson (Chief Monetary Officer)
No, I believe that’s proper, Chuck. You recognize, you need to assume again as properly. In prior 12 months apart from This autumn, that’s the primary quarter that basically was apples to apples when it comes to having splunk within the prior 12 months. So a few of the development charges earlier than This autumn have been clearly increased than they might be in any other case.
OPERATOR
Nita Marshall with Morgan Stanley. It’s possible you’ll go forward. Nice. Thanks.
Morgan Stanley Fairness Analyst
Admire the query. Possibly a pair for me, only one, how are you safety and enterprise? Possibly specifically you’re now anniversary splunk. As you guys simply talked about. However simply form of how are you. Wanting on the development outlook there as you may have some form of new merchandise and previous merchandise cascading in after which perhaps second simply new CFO priorities would. Be nice to form of stage set.
Chuck Robbins (Chair and CEO)
Thanks. All proper. Why don’t I cowl safety and Mark, you’ll be able to clearly cowl CFO priorities. Mita, thanks for the questions. I’d say that I’m extra optimistic about safety popping out of final quarter and I’ll let you know why. Final quarter I defined to all of you that we actually have two units of merchandise. We now have the set that’s new and refreshed and that’s the sase, XDR hypershield, AI protection, in addition to our refreshed firewall portfolio. After which we now have the world of older merchandise that aren’t enormous. Funding areas for us proper now are form of the lengthy tail of the life cycle. When you have a look at these new merchandise and new and refreshed once more, together with our refreshed firewalls, we noticed order development in the course of the quarter in extra of 20%. In order that they proceed to have widespread adoption. However maybe the metric that I believe offers you extra confidence right here is for those who take out U.S. federal, which had a tricky 12 months as everyone knows, remainder of world safety order development in This autumn was up double digits. So we’re actually, we’re seeing this ramp. And I instructed, I believe I mentioned on final name it’s occurring slower than I’d anticipated. A whole lot of it’s as a result of these items is ratable. However I Be ok with the place we’re. We now have 80 new hypershield clients largely related to this new good change. In order that technique is working. And I’d say that we had 480 plus new SSE clients in the course of the quarter. In order that’s our safe companies edge is basically getting good traction. And what I’d say is predicated on how we see these items evolving, I’d see the expansion price persevering with to enhance as we get via the fiscal 12 months this 12 months. In order that’s the story on safety. Mark, you wish to take the second query? Certain.
Mark Patterson (Chief Monetary Officer)
Thanks Meena, to your query. First off, I simply wish to thank Scott, been actually a superb accomplice for a few years and for the work that he’s performed with Cisco and specifically I believe serving to us make that transition to software program and subscription. You recognize, I’ve been with the corporate now 25 years in a wide range of roles and duties and I believe as I look forward, we now have important alternative, whether or not it’s in AI infrastructure, within the net scale area now within the nascent however rising enterprise AI alternative, clearly NEO Clouds and the sovereign AI buildout occurring. Additionally you look to cybersecurity and the way we’ve improved our hand there with Splunk after which the campus refresh that we’ve received forward of us, which can be multi 12 months. I believe we’ve received nice alternative and what I actually wish to do is make it possible for we’re funded for fulfillment and we’re these alternatives for what do we have to do to achieve success. I additionally assume when it comes to expectations of me, , you’ll be able to count on that I can be targeted on sturdy, worthwhile development, clearly, , monetary self-discipline and transparency and actually simply returning worth to the shareholders. Thanks.
Chuck Robbins (Chair and CEO)
Thanks. I wish to add another factor, Mito, on the safety entrance that I failed to say. One other constructive factor that occurred in the course of the quarter. We’ve had two consecutive quarters now relative to Splunk, for those who recall. One of many massive issues that we thought we might do is carry them new clients by cross promoting Splunk into clients they’d not been in. And in Q3 and This autumn we had over 300 new logos for Splunk new clients that that purchased Splunk for the primary time. In order that technique appears to be working. The groups are doing a very good job there, which is one more reason I’ve confidence within the safety technique this 12 months.
OPERATOR
Thanks. Simon Leopold with Raymond James. It’s possible you’ll go forward.
Raymond James Analyst
Thanks very a lot for taking the query. First one I wished to ask about this concept of pull forwards, I respect clients might not talk their rationale causes for putting explicit orders, however I’m involved that significantly within the federal vertical with potential price range cuts and enterprises anxious concerning the implications from tariffs might have accelerated a few of the orders, due to this fact pulling them from the later quarters. After which as my observe up, I’m questioning for those who might discuss your expectations over the long run for the composition of the AI enterprise. We’ve received the two/3, 1/3 cut up between programs and optics and I’m questioning the way you count on that to development or is that this an anticipated regular state? Thanks.
Chuck Robbins (Chair and CEO)
Thanks, Simon. I’ll make a few feedback on the pull ahead and Mark, you can provide some information factors on why we’re fairly assured that hasn’t occurred at scale. You recognize, we’ve checked out, there’s a number of metrics that we have a look at right here and I speak to clients continuously, we speak to our subject groups continuously and I haven’t heard one occasion within the final six months of a single buyer who mentioned I’m going to order this now earlier than value will increase happen. Not that we’re growing costs, we haven’t introduced something like that. However I’m simply saying that’s the idea that you just’re placing ahead. So I’m not suggesting that it hasn’t occurred someplace, however I believe I’d have heard it if it was pervasive. Mark?
Mark Patterson (Chief Monetary Officer)
Yeah. Simply so as to add perhaps a number of information factors, actually we speak to many channel companions, additionally have a look at our typical linearity from month 1, 2, 3, et cetera. That each one look good. We now have on lots of our merchandise we even have software program that will get activated as soon as it’s shipped. So one of many issues we have a look at is basically that point from cargo to activation and to see if that’s stretched out in any respect. It didn’t. As properly, we additionally have a look at ship dates requested from clients and if these are sliding, then that is perhaps a sign that they don’t really need the gear but, however they wished to get an order in early. Didn’t see any problem there both. After which actually simply in fact we checked out pipeline pull forwards and nothing uncommon there both. So we’re fairly assured that we haven’t seen any indication of any pull forwards.
Chuck Robbins (Chair and CEO)
Thanks Simon. In your second query, the AI enterprise composition, particularly within the again finish networks as we speak of the cloud suppliers, I don’t see something that might point out an enormous shift there. Primarily based on the conversations we’re having with them, I haven’t heard something that might lead me to consider that that shift adjustments meaningfully.
OPERATOR
Thanks. Samik Chatterjee with JP Morgan. It’s possible you’ll go forward, sir.
JPMorgan Analyst
Nice. Thanks for taking my query. Possibly Chuck, if I can kind of ask you extra on the networking cycle right here, significantly that there was a time frame that you just went via a digestion with clients and then you definately began to see the restoration within the networking cycle. There’s been 2/4 of stable development on that entrance. As you concentrate on subsequent 12 months or fiscal 2017, how do you kind of see that development sustaining? Notably if we kind of put apart the brand new upgrades in relation to Cat 9K upgrades that you just’re like the place are clients when it comes to their intent to improve legacy infrastructure? And mainly what I’m making an attempt to get to is on the investor day you had talked about 2 to five% being the vary of networking via the medium time period. And the place do you assume you land on that entrance in fiscal 26? Thanks.
Chuck Robbins (Chair and CEO)
Thanks Amit. I believe that, , for those who step again, there’s two issues occurring. There’s this AI community, there’s AI revolution that we will discuss after which there’s the refresh alternative. And for those who, if you concentrate on the AI revolution, what we’re seeing, and we’ve seen this with transitions over the past decade or so. So we are likely to see this stuff start first within the cloud suppliers, which we’re clearly seeing the AI play within the cloud suppliers. Then we see it shift into the enterprise. Effectively, we see it shift from the again finish, on this case from the again finish to the entrance finish. We consider that can happen as enterprises begin utilizing extra of those companies after which enterprises may even construct out inferencing as we all know on prem along with that. And we’re even seeing the telco enterprise truly decide up as they’re truly telling us they’re growing their community capability and so they’re modernizing their infrastructure in preparation for AI. So we predict the AI goes to drive community modernization throughout all of those segments. After which you may have the campus improve which we actually haven’t began but. And if you concentrate on what the remark I made earlier, we received routing refreshed. We’ve received a number of new expertise in our information heart networking enterprise which by the best way grew mid teenagers orders final fiscal 12 months. Within the enterprise we now have Wi Fi 7 which grew triple digits 12 months over 12 months. So we’re seeing good uptake there. And we received the brand new campus merchandise however the brand new campus switching once more, we’re in 12 months 8 of the Cat 9K and truthfully for those who have a look at merchandise that have been pre cat 9k which can be nonetheless put in in our buyer base. There’s tens of billions of {dollars} of set up base that’s there that we, we will go after. So we predict that each one of that leads us to really feel very assured about sustaining the vary that we supplied at analyst day on Core Community.
OPERATOR
Thanks. Michael Ng with Goldman Sachs. It’s possible you’ll go forward.
Goldman Sachs Analyst
Hey, good afternoon. Thanks for the query. I simply have two as properly. First, on AI, I used to be questioning for those who might speak concerning the higher than 2 billion AI orders this 12 months. Did that translate into income within the 12 months and the way ought to we take into consideration that translating into income for subsequent? After which second, simply on networking, I used to be questioning for those who might speak slightly bit concerning the orders within the quarter by subsegment, campus and information heart switching, wi-fi routing, and any form of notable inflections that you’d name out in any of these product classes. Thanks, Chair Michael.
Chuck Robbins (Chair and CEO)
Let me take some feedback. First on the I wish to simply give the readability on the internet scale enterprise and what it appeared like. After which Mark can speak concerning the income in FY25 associated to their AI infrastructure orders. So I simply wish to be sure that everyone understands our net scale enterprise. To begin with, we promote expertise into the again finish, we promote expertise into the entrance finish or the standard cloud networks, and we promote our enterprise portfolio to those clients as properly. And for those who have a look at our complete portfolio, these clients in mixture grew triple digits 4 quarters in a row. From an orders perspective, we had 4 of them that grew triple digit in This autumn by themselves. And as I mentioned in my ready remarks, we had two of those clients throughout the portfolio that positioned orders in extra of $1 billion every in fiscal 12 months 25. So for those who assume again 5 years in the past after we have been speaking about our technique on this area, this was positively not the case. So we be ok with the progress we made. After which I believe you Understood on the AI infrastructure, we had higher than 800 million in orders in the course of the quarter and we now have higher than 2 billion on the 12 months, greater than double our unique goal. Mark, you wish to speak slightly bit concerning the income?
Mark Patterson (Chief Monetary Officer)
Certain, yeah. When it comes to income and shipments associated to these AI orders, these actually simply progressed and ramped like we anticipated throughout FY25. So for the complete 12 months, we acknowledged proper a few billion doll in income associated to these. So we acknowledge roughly a billion {dollars} of income on the AI again finish orders that we’ve taken from the net scale clients. Throughout fiscal 12 months 25.
OPERATOR
Thanks, Amit Daryanani with Evercore. It’s possible you’ll go forward.
Evercore Analyst
Good afternoon everybody. Thanks for taking my query. I’ve two as properly. Chuck, perhaps simply on the AI aspect. As you have been speaking about that slightly bit right here, are you able to contact on. AI adoption by enterprises and the way do. You actually assume that chance on the. Enterprise aspect form up given I believe. Silicon One is the one accomplice silicon that Nvidia is supporting proper now. So how massive do you assume this enterprise alternative is? And while you begin to see revenues. Or orders stream into that after which. My observe up perhaps simply proceed on. To the prior reply you posh had. How a lot income contribution are you embedding in fiscal 26 from AI given the $2 billion. Given the $2 billion order that you just had this 12 months? Thanks.
Chuck Robbins (Chair and CEO)
Yeah, Amit, good query. So on the enterprise aspect we noticed orders and these are orders which can be actually kind of networking and AI GPU associated. I believe in our remarks we talked about earlier the they’re about half and half and we noticed a number of hundred million {dollars} that transfer via and we now have tons of of hundreds of thousands within the pipeline proper now for enterprise. I’d say that there’s a number of pilots going, there’s a number of work occurring with clients who’re piloting completely different functions in retail environments, et cetera. So we predict it’ll begin to ramp after which we predict that you just’ll see AI functions ramp. After which the second half of the 12 months we predict you’re going to see agentic proof of ideas develop into extra, I’d say, pervasive. And that’s going to require clearly community connectivity, community capability, low latency. And candidly, we’re going to need to put safety into the material of the community as a result of as we talked about earlier, these agentic workflows, they’re going to be in fixed communication. Whether or not you concentrate on normal brokers or you concentrate on robotics. You’re going to the significance of the low latency connectivity goes to be enormous and the safety goes to be enormous. And the one option to do each of these is to fuse safety into the core of the community. In order that’s our plan. That’s why we’re working so onerous on what we’re engaged on within the Nvidia area. I’d say a number of the event’s occurring. I’d simply say I don’t consider we’ve seen the significant good thing about that partnership but. And we’ve received some good growth that’s been accomplished. We received a number of milestones which can be going to be performed within the subsequent few months and we predict that because the enterprise actually begins to ramp up that partnership and our portfolio we predict can be in fine condition to take to assist them out. On the income contribution from fiscal 12 months 26 relative to AI, I’d simply say that we don’t actually information by particular elements of the expertise, however on condition that we had a billion in FY25, you’ll be able to in all probability extrapolate out what you assume we’ll do in 26 as a result of we received the backlog and we’ll have the brand new orders that we take down in the course of the 12 months.
OPERATOR
Thanks. Tal Liani with Financial institution of America. It’s possible you’ll go forward, sir.
Financial institution Of America Analyst
Sure. Hello guys. Two questions. I’ll ask them each collectively. Service revenues form of 25% of revenues flat this quarter. And for those who have a look at the development line over the past 5 quarters, the expansion decelerated from 6.5% to five.5% to 2.5% now. 0. What are the traits in service revenues and what ought to we count on going ahead? That’s query primary and query quantity two is the networking development. It’s pushed by spending of, of spending and investments by cloud. How a lot danger is there that this 12 months is an outstanding 12 months for spending and traits would decelerate subsequent 12 months simply because Oracle is just not going to develop once more one other 150% and Meta is just not going to develop once more one other 70, 80%, et cetera. So what’s the sustainability of those development charges in your view? Thanks.
Mark Patterson (Chief Monetary Officer)
Hey Tom, it’s Mark. So thanks for the query. I believe I’ll take the service one and I’ll let Chuck reply your second query. So on the companies, , for those who return a 12 months in the past and even slightly bit longer in the past, you noticed a number of skilled companies that we did, actually serving to our clients and our companions, frankly, working hand in hand to implement a number of that gear that we had shipped. When you keep in mind all that extra backlog that we kind of unloaded on our clients, if you’ll, we have been serving to do this. In order that drove good development in our companies enterprise for some time. What we normally do see, as , is companies normally trails or kind of falls on to what’s occurring in product, for example. In order we noticed, , networking development of 12% this quarter, I’d count on that, , you’ll begin to see companies decide up as income on companies is ratable. So we do count on that that can enhance as we go into FY26.
Chuck Robbins (Chair and CEO)
After which on the chance problem, , all I can say Tal, is that we see the identical capex 12 months over 12 months development numbers that you just see and I believe the combination quantity is like 50% up. So I don’t really feel like AI is a fleeting development. I do perceive your query, however I believe, , we’re working off the demand indicators we’re getting from these clients and what they’re signaling relative to how
OPERATOR
Thanks. Ben Reitzes with Milius Analysis. It’s possible you’ll go forward, sir.
Milius Analysis Analyst
Hey, thanks Chuck. I imply I believe some of us have been making an attempt to get at this in an earlier query, however , safety, I imply your execution and switching and the AI stuff is clearly higher than anticipated, however the safety was fairly properly beneath the road and has to speed up fairly considerably to get to your 15 to 17% development for safety plus observability long run goal. I imply, is that also the best method to consider that enterprise, Chuck? Is that the place you assume you’ll be able to at the least finish the 12 months and if not, is it price rethinking that it’s a excessive single digit grower? Simply questioning on that after which I fast observe up. Ben, do you perceive the second now? Ben? We’re writing them down so. Oh, okay. Effectively I used to be simply on the, I used to be questioning, , on the humane and a few of these sovereigns, , you talked about the Nvidia deal a lot, however on one in all them you’re working with amd. I’m simply questioning, , how with regard to your partnering outdoors of Nvidia within the AI land, how a lot is {that a} focus and is that one thing that you just’re capable of do as properly?
Chuck Robbins (Chair and CEO)
Yeah, so to start with I gave you the info earlier after I was speaking about safety and I talked about the truth that ex Fed we noticed safety orders develop in double digits which is fairly constructive in comparison with the place we’ve been. And these new and refreshed merchandise that I talked about that included safe entry, xdr, hypershield, AI protection, new firewalls and id, which is tremendous essential lately. In Agentic, the refreshed id portfolio, we noticed that rising in extra of 20% and that’s at present about two thirds of the natural safety portfolio. So via the 12 months what you’re going to see is that simply proceed to develop into a much bigger and larger half in order that the third, that’s kind of the legacy stuff can have a decrease affect, will proceed to have a decrease and decrease unfavourable affect on that as we. Get via the 12 months. So to reply your query instantly, primary, I don’t assume we must always change these ranges. Quantity two, do I consider we’ll exit the 12 months at it? I believe we’re going to exit the 12 months both close to it or on a path to get there fairly quickly after that. That’s first on the humane and on the sovereign aspect, we’re working very intently with AMD on a few these. And you must assume that we’ll have a really, very tight partnership with them as properly, in order that we’re primarily in order that we will ship extremely built-in options to those clients as we work with them going ahead. So Lisa and I speak pretty recurrently. As you all know, she was once on our board, so we now have an excellent relationship and you must assume that we’ll have a decent partnership the place we have to to ship outcomes for these clients.
OPERATOR
Piper Sandler Analyst
Hey, thanks for the questions right here, guys. I do know Chuck Mita requested about this slightly bit earlier. Is there a method to consider for each greenback of cat 9k refresh, what number of {dollars} are form of coming off of the opposite options, be it wi-fi lan, firewall, different safety merchandise? And simply to observe up on the final query right here, anniversary in Splunk, how are you guys enthusiastic about your personal use of capital given massive M and A and safety? As soon as once more, I’m stunned I’m the primary one to ask about this, given the Cyber Arc deal. And the way are you enthusiastic about that id and privileged entry area given you’re going to have extra AI to AI or machine to machine interactions occurring sooner or later? Mark, be happy to remark, however I don’t assume there’s a option to actually correlate. I didn’t utterly perceive that first query concerning the correlation.
Mark Patterson (Chief Monetary Officer)
Yeah, I believe he’s asking, are you able to correlate the cat 9k to kind of different campus units round it, if you’ll? It truly appears like an excellent concept I’d love for that mannequin, however there’s so many different new units that we launched as properly, if you’ll. I imply, the good routers, the good switches, but in addition new WI fi entry factors, et cetera. So it’s positively one thing that we’ll check out, however I don’t assume it’s that straightforward, if you’ll.
Chuck Robbins (Chair and CEO)
So on the second, Mark, let’s discuss capital and the way we plan to make use of it, or nothing’s actually modified. And I’ll discuss id.
Mark Patterson (Chief Monetary Officer)
Yeah. So for those who have a look at FY25, first off, we returned $12.4 billion to the shareholders, so 94% of our free money stream as you have a look at it going ahead and possibly essential so that you can hear this from me too. Primary, the primary precedence is simply to help the expansion of the enterprise. Secondly is to help the dividend, clearly which we now have been growing every year for a while. One other is simply to essentially offset dilution could be the third precedence. After which fourth, I’d simply say being opportunistic on how we will moreover carry worth to our shareholders.
Chuck Robbins (Chair and CEO)
After which particularly on id in relation to the to the introduced acquisition. I believe that really underscores what we’ve recognized for 10 plus years, which is the significance of id in zero belief architectures. It’s a core pillar of our platform technique. It’s not an add on. We now have nice management on this area. A whole lot of deep data and innovation with Duo and ice, strategic acquisitions like Duo and Orc that we have already got on board This autumn duo development was off the charts with a number of the brand new capabilities that the groups have inbuilt for the shoppers as clients simply as we speak have a look at zero belief architectures relative to their workers. However we’re already engaged on agentic Identification which is one thing that’s actually essential. And I believe that, , the excellent news for us is we don’t have to attend for an acquisition to shut. We now have a number of nice expertise that’s already engaged on this. And once more I believe that the benefit that we’re going to have right here with, with Identification and Agentix Safety is that you just’re going to need to do it actual time. And we’re the one firm that has networking and safety and Identification particularly inside safety. So we predict that offers us a bonus.
OPERATOR
Thanks. David Vogt with UBS. It’s possible you’ll go forward, sir.
UBS Analyst
Nice. Thanks guys for taking my questions. I’ve two as properly. So Chuck, I acknowledge you don’t information to particular product, but when I take into consideration your order consumption has been averaging at the least form of roughly 50% on common for SP. And if I take advantage of that as a proxy in fiscal 26, it seems to be like AI might add about 2 factors of income development to kind of the networking enterprise in 26 and is that form of the best option to body it? And the remaining is basically the restoration or perhaps the refresh cycle in campus and strengthen enterprise. After which Mark, my second query for you is I respect all of the element on the Tariff affect. Admire that within the slide, however are you able to assist us body from a gross margin affect? Is it a 50 foundation level headwind in your information for fiscal 26 primarily based on the place present tariff charges are and the way you’re enthusiastic about it for the complete 12 months?
Chuck Robbins (Chair and CEO)
Thanks. Yeah, let me reply the primary one after which Mark can discuss tariffs. I believe you’re typically within the ballpark. I believe, I don’t know particularly what number of factors, however we do count on either side to be contributing fairly meaningfully. I believe we did an evaluation of our overarching development in This autumn and I believe that even for those who normalized out Webb, it made a one level differential. I believe so. I believe you’re shut.
Mark Patterson (Chief Monetary Officer)
Yeah. So far as tariffs, they have been actually a small affect in This autumn in addition to for FY25 and, and , reasonably than sizing the greenback quantity, what I actually wished to do was provide the assumptions that underpin the information and actually reinforce that the elements which can be a part of that, Actually China at 30% with the persevering with offset by the exemption for the semiconductors and sure digital elements. Mexico at 25%, Canada at 35% and people are just for the elements that don’t qualify underneath USMCA after which different international locations going again to the reciprocal charges which can be largely offset by these exemptions for semiconductors and digital elements plus some small, , tariffs associated to metal, aluminum and copper. So actually simply wished to be sure to knew the precise assumptions which can be into the information.
Chuck Robbins (Chair and CEO)
Yeah, it’s very troublesome to incorporate something that hasn’t been introduced but as a result of it’s such a dynamic atmosphere.
OPERATOR
Thanks. Karl Ackerman with BMP Paribas. It’s possible you’ll go forward, sir.
BMP Paribas Analyst
Sure, thanks. Two for me as properly. And I’ll ask them on the similar time. Inside your fiscal 26 outlook, I hoped you can rank order the segments that provide the most conviction in hitting the goal that you just laid out. Second, Chuck, you indicated that Silicon one ought to develop as a portion of your Nexus good switches over time. And I hoped you can talk about whether or not siliconone can signify half of your change Asics within the subsequent three years. Thanks.
Chuck Robbins (Chair and CEO)
That’S an excellent query. So if I rank order the segments, I’d say I nonetheless stay very optimistic on sp. In all probability secondly enterprise and possibly third public sector. However I want to touch upon public sector and provide you with one other, provide you with all one other information level. Our total order development or bookings development of seven%. When you take out federal, the Remainder of the world grew at 10%. So we noticed good efficiency outdoors of Federal. Once we take into consideration Federal in fiscal 12 months 26, simply to place it in perspective, our groups are forecasting a return to development for Federal throughout this fiscal 12 months. Now, it’s not, it’s not going to be the identical, it’s not going to be as excessive of development as we noticed a decline. So we’ll nonetheless be beneath FY25 ranges. However the excellent news is that they’re forecasting development, in order that’s higher. However I nonetheless assume I’d stack rank them service supplier, enterprise and repair supplier, together with cloud clearly, after which enterprise and public sector on the Nexus portfolio. So that you’ve received, I believe we, , we’ve received the 800 gig Nexus product that’s silicon one primarily based. We’ve received the good switches that can be Silicon One primarily based. So it’s our intent to really drive this as quick as we probably can. And so I believe your assumption is just not too far off.
OPERATOR
Thanks. Atif Malik of Citi. It’s possible you’ll go forward.
Analyst
Hello, it’s Adrienne Colby for Atif. Thanks for the query. The EMEA orders accelerated within the quarter and I hoped you can present some coloration there and likewise wished to only circle again on the sovereign AI alternatives about your expectations when it comes to order stream and income recognition there. Thanks.
Chuck Robbins (Chair and CEO)
Okay, nice. So for those who have a look at EMEA, we noticed 10% total orders. Enterprise was up within the mid teenagers, public sector roughly flat. SP within the mid teenagers. We noticed power within the uk, Germany, Saudi SP was robust, safety was robust, clearly flat. In public sector, we’d prefer to see it slightly higher. And I believe there in Europe, I believe we see alternatives. There’s a pair issues occurring. Primary, there’s a number of concentrate on sovereignty and a number of concentrate on constructing out their very own tech stack and tech options. In lots of instances they’re very eager on having on prem options like assume on Prem Splunk or on Prem WebEx. From a sovereignty and geopolitical perspective, that’s the place they’re going. So we predict the chance there and the protection spending and every little thing else, we predict that can proceed to be a superb alternative for us in Europe in that area, clearly in Europe, Center East, Africa, we’ve received a few sovereigns that we’ve introduced and we now have not taken any orders from them but. We’ve been within the planning phases with them. They’re clearly working via getting the licenses for the GPUs and we kind of count on that’s going to, I’d lean in direction of in search of that, even the order stream to be kind of center 12 months into the second half after which income would observe.
OPERATOR
Thanks. Sebastian Najee with William Blair. It’s possible you’ll go forward.
William Blair Analyst
Yeah, thanks for squeezing me in. My first query is on the again finish AI community Alternative, however perhaps slightly bit extra long run. There’s a number of chatter out of your principal Silicon competitor about new chips which can be going to allow Ethernet for scale up connectivity. So throughout the racks I wished simply to ask what your expectations are for Ethernet and scale up going ahead and if we must always Count on new silicon 1 bulletins tailor-made to that chance. After which my second query is simply on the campus community, you introduced the mixing of Meraki and Catalyst platforms at Cisco Dwell and I believe the reactions have been typically fairly constructive. However I’m questioning for those who count on this to shift habits in {hardware} purchases in any respect. So might we see for instance, outdoors power in Meraki and slower demand for Catalyst or vice versa within the subsequent few years?
Chuck Robbins (Chair and CEO)
Yeah, two nice questions. So I believe on the again finish aspect, as I’ve mentioned earlier than, within the networking aspect, the 2 areas the place the worth is basically derived is both within the silicon or within the software program. And so on condition that many of those of us are utilizing a number of their very own working programs, you need to have silicon to play within the first place. So the excellent news is we do. Then while you have a look at, while you have a look at this scale up alternative within the again finish of the hyperscalers, generally there, they’re not utilizing the clusters with the dimensions up contained in the cluster, they’re utilizing native connectivity throughout the clusters after which between clusters. And we predict there that that in all probability stays the predominant play. We’re seeing the will for a few of these clusters and neoclouds, et cetera, as a result of they’re straightforward, however there’s nonetheless a connectivity layer clearly between the clusters. From a scale up perspective, we predict over time that chance might shift to extra of an Ethernet variant, which might give us clearly a straightforward option to play. We’ve received roadmaps that we’re engaged on that haven’t been introduced but, however I believe downstream, if that happens, we might positively play in that area. On the Meraki Catalyst query, I truly assume the alternative is definitely what you’d see is you’d see extra openness to Catalyst due to the cloud administration, the straightforward cloud administration. I believe there’s 35 million units now being managed by the Cloud. And so it simply provides clients selection. It rationalizes the {hardware} all the way down to a single platform that you may run in both mode. You possibly can run it on prem or you’ll be able to run it cloud managed. And I believe that’s a giant profit for our clients as we go ahead.
Chuck Robbins (Chair and CEO)
Yeah, I wish to thank everyone for becoming a member of as we speak and once more reiterate my because of our group for all their nice work in This autumn and monetary 25, which actually did set a stable basis for fiscal 12 months 26. Mark, welcome. We’re enthusiastic about your first earnings and what’s forward. I’m comfortable to. I’m actually enthusiastic about working with you. Clearly, we see good demand for our expertise. We see nice issues working throughout an excellent portion of our portfolio. AI is clearly a serious tailwind. The net scale momentum, the emergence of the enterprise, the sovereign and the NEO cloud alternatives. We’ve received the agentic section coming alongside. I be ok with the place we’re. I be ok with the efficiency. We nonetheless need to proceed to execute and we, we really feel actually good that we’ve received the enterprise positioned for fulfillment in 26. There are actually a number of dynamics in a really complicated world that we’re all managing every day, however primarily based on what we will management, we really feel actually good about it. I wish to thanks for being with us as soon as once more. And Sami, I’ll flip it again over to you.
OPERATOR
Thanks, Chuck. Cisco’s subsequent quarterly name, which can define our first quarter FY26 outcomes, can be on Wednesday, November 12, 2025 at 1:30pm Pacific, 4:30pm Japanese Time. This concludes as we speak’s name. If in case you have any additional questions, please be happy to contact the Cisco Investor Relations Division. And we thanks very a lot for becoming a member of the decision as we speak. Thanks for taking part on as we speak’s convention name. If you need to take heed to the decision in its entirety, it’s possible you’ll name 1-800-391-9853. For contributors dialing from outdoors the US please dial 203-369-3269. This concludes as we speak’s name. It’s possible you’ll disconnect at this.
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