Cisco Systems (NasdaqGS:CSCO) FY Conference Transcript

Summary of Cisco Systems FY Conference Call Company Overview - Company: Cisco Systems (NasdaqGS:CSCO) - Date of Conference: November 18, 2025 - Speaker: Mark Paterson, CFO Key Industry Insights - Growth Drivers: Cisco identifies several key growth drivers for the upcoming 12 to 24 months, including: - AI networking and infrastructure - Cybersecurity enhancements, particularly following the acquisition of Splunk - A significant campus refresh opportunity due to aging equipment and increased security needs [11][15][17] Financial Performance - Recent Earnings: Cisco reported strong earnings with broad-based order growth across geographies and customer markets, indicating a robust demand for its products [15][12] - Order Growth: The company achieved $1.3 billion in new orders from top hyperscalers in Q1, significantly exceeding its previous target of $1 billion [20][26] - Revenue Projections: Cisco anticipates over $3 billion in revenue from AI-related orders this fiscal year, up from $1 billion last year [28][26] AI and Hyperscaler Engagement - AI Infrastructure: Cisco's role in AI has evolved, with a focus on providing critical technology for hyperscalers and enterprise AI applications. The company aims to double its previous year's order growth, targeting $4 billion in AI-related orders [25][26] - Web Scalers: Cisco has seen over 100% growth in orders from four different web scalers, indicating strong demand for its AI infrastructure solutions [43][42] Campus Upgrade Cycle - Multi-Year Opportunity: The campus upgrade cycle is expected to be a multi-year, multi-billion dollar opportunity driven by aging equipment, security risks, and the need for AI application deployment [80][81] - Product Innovations: Cisco has introduced a comprehensive refresh of its campus switches and security products, integrating AI capabilities to meet evolving customer needs [81][82] Competitive Landscape - Market Position: Cisco reported a 13% global order growth, with a 9% growth excluding web scale, indicating strong competitive positioning despite a competitive market [93][96] - Customer Adoption: The transition to new platforms in campus networking technologies is happening faster than previous launches, showcasing strong customer adoption [96][95] Silicon One Strategy - Strategic Asset: Silicon One is highlighted as a critical asset for Cisco, providing technological advantages and cost savings, which are appealing to hyperscalers [102][108] - Future Plans: Cisco plans to have all high-powered systems based on Silicon One by FY2029, enhancing control over its supply chain and gross margins [109][108] Security Business Dynamics - Revenue Trends: Cisco's security business is experiencing a transition to cloud offerings, which may temporarily impact revenue recognition but is expected to lead to stronger long-term growth [125][126] - Customer Adoption: The company has seen a growing customer base for its new security technologies, with 3,000 new customers added recently [127][126] Supply Chain and Pricing Strategy - Component Costs: Cisco is facing memory price increases and supply chain challenges but has managed to maintain stable gross margins [145][146] - Pricing Adjustments: The company implemented a price increase at the beginning of the quarter to address rising component costs, which has helped mitigate some margin pressures [154][153] Government Exposure - Public Sector Growth: Cisco's public sector business, particularly in defense and intelligence, is performing well, with mid to upper single-digit growth expected [160][161] Capital Return Strategy - Share Buybacks: Cisco plans to continue its share buyback program, with a run rate of $1 billion per quarter, while also supporting its dividend [169][170] Investor Insights - Networking Importance: The critical role of networking in AI and hyperscale environments is emphasized, highlighting the ongoing demand for Cisco's networking solutions [174][175] - Market Opportunities: Even amidst concerns about an AI bubble, Cisco sees significant opportunities in networking spend associated with AI growth projections [177][178]