From Nasdaq: 2025-02-12 23:30:11

Cisco Systems reported strong demand growth in its Nexus portfolio and data center switching, with three out of six segments growing over 100% year over year. Despite geopolitical risks, customers continue to invest in technology due to ongoing changes in the industry. Analysts are impressed with Cisco’s innovation and product offerings, including the new 9300 Nexus switch with AMD DPU integration for enhanced security and network capabilities. Cisco believes the market demand is being driven by customers preparing for AI integration in their services. Companies are accelerating AI preparations to meet future needs. Genetic AI work streams will increase network capacity, according to Sami Badri, VP of Investor Relations. Cisco CEO Chuck Robbins notes early enterprise AI adoption, with spending on AI-driven infrastructure and upcoming AI applications like Hyperfabric and Hypershield.

Cisco CFO Richard Scott Herren explains a slight decline in gross margins due to proposed tariffs, including 25% on China and 10% on Canada. Mitigation strategies have reduced exposure to Chinese tariffs by 80%, with plans to offset tariff impacts. Demand impact from tariffs remains uncertain in the dynamic environment.

Analyst questions on enterprise demand response to tariffs are addressed by Cisco executives. No evidence of demand pull forward due to tariffs, as customers await clarity on tariff implementation. Scott Herren emphasizes mitigation strategies to offset tariff costs if they take effect. The environment remains uncertain, impacting customer decisions. On the revenue side, we are expecting the $700 million in AI orders to start converting into revenue this fiscal year. The orders are mainly for switching and optical wins, but we are seeing wins in other products as well. The teams have worked hard to increase yield and accelerate development efforts for multiple chips, which bodes well for revenue generation. In a recent earnings call, Cisco CEO Chuck Robbins discussed revenue expectations, mentioning order timelines and revenue ramping up in the second half of the year. He highlighted progress with Splunk, cross-selling efforts, and the systems approach over just raw silicon sales. Analysts inquired about enterprise orders, competition, AI applications, and data center challenges. Major enterprises are building clusters for AI training, either on their own models or with major GPU providers. The focus is on supporting inferencing. NVIDIA GPUs have been purchased as a whole stack, but networking equipment integration with NVIDIA GPUs is an emerging opportunity. Power concerns are not a major issue in the enterprise space compared to web scale.

Cisco’s 51.22 silicon is set to come out in April for AI orders, primarily tied to switch and Silicon One silicon. The company continues to develop multiple silicon architectures based on customer use cases. On the campus side, the transition to WiFi 7 is anticipated over the next two to three quarters, with a full transition expected in traditional on-prem access points and cloud managed solutions.

Enterprise networking lead times have normalized, with no lead time pressure affecting the outlook. The demand seen is not a result of extended lead times as seen in previous years. Cisco’s offerings for traditional service providers aim to address key issues and support their embrace of AI, with a focus on anticipating increased network demand driven by AI.

Telco segment had a good quarter, with anticipation of increased network demand driven by AI. Telcos are preparing for increased load on their networks and are building out their infrastructure to meet the expected demand. International telcos, in particular, are investing in network build-outs in anticipation of future needs. Cisco CEO Chuck Robbins expects continued fluctuation in telco deals but sees strong demand. European operators are gearing up for AI edge applications. Robbins is proud of Cisco’s innovation and customer engagement, confident in their steps to navigate potential tariffs. The next quarterly call is scheduled for May 14, 2025. Cisco remains optimistic about future performance.

Investors can listen to the full call by dialing 1-800-395-6236. Cisco executives, including Chuck Robbins and Sami Badri, participated in the call. The company remains transparent about their financial performance and invites further inquiries from investors. The Motley Fool has positions in and recommends Cisco Systems, offering analysis and earnings call transcripts for reference. 1. The US economy added 559,000 jobs in May, exceeding expectations as the unemployment rate dropped to 5.8%. However, a shortage of workers in several industries is causing concern for economic recovery.

2. The CDC announced that fully vaccinated individuals can now go without masks in most indoor and outdoor settings, marking a significant step towards returning to pre-pandemic life.

3. Amazon is set to acquire MGM Studios for $8.45 billion, giving the e-commerce giant access to a vast library of content for its streaming platform, Amazon Prime Video. The deal is expected to boost Amazon’s competitive position in the streaming industry.

4. Tesla CEO Elon Musk announced that the company will no longer accept Bitcoin as payment for its electric vehicles, citing environmental concerns over the cryptocurrency’s energy usage. The decision caused a drop in the price of Bitcoin and sparked debate over the sustainability of digital currencies.

5. The Colonial Pipeline, which was hit by a cyberattack earlier this month, has resumed operations after paying a ransom of $5 million to the hackers. The incident highlighted the vulnerabilities of critical infrastructure to cyber threats and raised concerns about the need for stronger cybersecurity measures.



Read more at Nasdaq: Cisco Systems (CSCO) Q2 2025 Earnings Call Transcript