Cisco Systems(CSCO) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Cisco reported Q4 revenue of $13.6 billion, exceeding the high end of guidance, and total revenue for fiscal year 2024 was$ 53.8 billion, down from $57 billion in fiscal 2023 [7][24] - Non-GAAP net income for Q4 was$ 3.5 billion, with non-GAAP earnings per share at $0.87, also above guidance [19][10] - The gross margin for Q4 was 67.9%, the highest in 20 years, reflecting a 200 basis point increase year-over-year [22][25] Business Line Data and Key Metrics Changes - Total product revenue was$ 9.9 billion, down 15% year-over-year, while services revenue increased by 6% to $3.8 billion [20] - Security revenue surged by 81% due to the acquisition of Splunk, with a 6% growth excluding Splunk [20] - Collaboration revenue remained flat, while observability revenue grew by 41%, with a 12% increase excluding Splunk [20][21] Market Data and Key Metrics Changes - Product orders increased by 14% year-over-year, with a 6% increase excluding Splunk, indicating a recovery from inventory digestion [22] - Public sector orders rose by 20%, enterprise orders increased by 13%, and service provider cloud orders grew by 5% [22] - Geographic product order growth was 15% in the Americas, 12% in EMEA, and 16% in APJC [22] Company Strategy and Development Direction - Cisco is focusing on integrating its networking, security, and collaboration teams to enhance product offerings and customer solutions [8] - The company is investing in AI, cloud, and cybersecurity as key growth areas, with a restructuring plan to improve efficiency and resource allocation [9][26] - The integration of Splunk is expected to enhance Cisco's capabilities in security and observability, driving further innovation [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate a dynamic environment, emphasizing the importance of execution in growth markets [18] - The restructuring plan is aimed at reallocating resources to high-growth areas rather than merely cutting costs [26] - Management noted that customers are increasingly preparing their infrastructure for AI applications, indicating a shift in investment priorities [30] Other Important Information - Cisco returned$ 3.6 billion to shareholders in Q4, totaling $12.1 billion for fiscal 2024, representing 119% of free cash flow [11][25] - The company expects fiscal Q1 revenue to be between$ 13.65 billion and $13.85 billion, with a non-GAAP earnings per share guidance of$ 0.86 to $0.88 [26] Q&A Session Summary Question: Customer budget prioritization and AI initiatives - Management noted balanced demand across regions and sectors, with enterprise customers upgrading infrastructure in preparation for AI [29][30] Question: Impact of layoffs on fiscal '25 guidance - Management confirmed that the restructuring is embedded in the fiscal '25 guidance, focusing on reallocating resources rather than cost savings [34][35] Question: Concerns about restructuring amid growth - Management clarified that the restructuring is about ensuring agility in a rapidly changing market, not a response to declining demand [39] Question: Security performance and market dynamics - Management reported strong growth in security, with increasing customer adoption of new security solutions [41][42] Question: AI orders and revenue translation - Management indicated that AI orders are primarily from web scale customers, with enterprise adoption expected to grow [44][46] Question: Integration of networking, security, and collaboration - Management emphasized the need for cross-integration to enhance competitive differentiation and meet customer needs [50][51] Question: Cloud order growth and performance - Management acknowledged mixed results in cloud orders but expressed optimism about future growth as the market stabilizes [68][70]