Cisco Systems(CSCO) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q3, total revenue was $14.1 billion, up 11% year over year, with non-GAAP net income at$ 3.8 billion and non-GAAP earnings per share at $0.96 [25][28] - Total product revenue increased to$ 10.4 billion, up 15%, while services revenue rose to $3.8 billion, up 3% [25][28] - Total annual recurring revenue (ARR) ended at$ 30.6 billion, a 5% increase, with subscription revenue up 15% to $7.9 billion, representing 56% of total revenue [26][28] Business Line Data and Key Metrics Changes - Networking revenue grew 8%, driven by double-digit growth in switching and enterprise routing, partially offset by a decline in servers [26][28] - Security revenue surged 54%, primarily due to growth in offerings from Splunk and SASE [26][28] - Collaboration revenue increased by 4%, while observability revenue rose by 24% [26][28] Market Data and Key Metrics Changes - Product orders grew 20% year over year, with a 9% increase when excluding Splunk [27] - In geographic segments, The Americas saw a 27% increase, EMEA was up 4%, and APJC grew by 21% [27] - In customer markets, Service Provider and Cloud orders increased by 32%, Enterprise orders were up 22%, and Public Sector orders rose by 8% [27] Company Strategy and Development Direction - Cisco is focusing on AI infrastructure, with over$ 600 million in AI infrastructure orders from web scale customers in Q3, surpassing the original target for the fiscal year [6][11] - The company is expanding partnerships, including a significant collaboration with NVIDIA to enhance AI capabilities [12][14] - Cisco is investing in the Kingdom of Saudi Arabia as a strategic technology partner for AI infrastructure, aligning with the country's Vision 2030 [13][14] Management's Comments on Operating Environment and Future Outlook - Management noted that customer purchasing behavior remains strong despite macroeconomic uncertainties, particularly in AI transitions [36][40] - The company expects continued growth in AI orders and infrastructure, with a focus on executing and increasing capacity [86] - Management anticipates that the sovereign AI cloud opportunity will ramp up in the near term, positioning Cisco as a core system provider [14][15] Other Important Information - Cisco returned $3.1 billion to shareholders in Q3 through dividends and share repurchases, with a total of$ 9.6 billion returned year to date [7][29] - The company announced the retirement of CFO Scott Herren at the end of fiscal year 2025, with Mark Patterson set to take over [19][20] Q&A Session Summary Question: What are you seeing in terms of customer buying behavior given the uncertainty with tariffs? - Management indicated no significant change in purchasing behavior, with customers committed to technology transitions, particularly in AI [36][37] Question: Is 2025 expected to be a peak year for cloud CapEx? - Management believes that global cloud CapEx will continue to grow, driven by sovereign cloud strategies and enterprise AI opportunities [48][50] Question: Can you elaborate on the $600 million in AI orders? - Management clarified that the$ 600 million in AI orders does not include any from the new Saudi AI company, which is just starting [55][57] Question: What is the impact of tariffs on guidance for Q4? - Management has built in expectations for tariffs in the Q4 guidance, reflecting the full cost without mitigation [88][97] Question: How is Cisco participating in the Middle East AI opportunities? - Management expects significant spending in the Middle East, with discussions focused on networking, compute, security, and observability [64][66]