The introductory paragraph of Cisco's Third Quarter Fiscal Year 2025 Financial Results Conference Call begins with the operator announcing the call is recorded. Sami Badri, Head of Investor Relations, introduces himself and the key executives present, including CEO Chuck Robbins, CFO Scott Herren, and Chief Strategy Officer Mark Patterson. They announce the availability of Cisco's earnings press release and supplemental information on their Investor Relations website. The discussion will include both GAAP and non-GAAP financial results and forward-looking statements with associated risks. Financial guidance commentary is restricted to public disclosures. Chuck Robbins then highlights that Q3 was a strong quarter, with revenue, margins, and earnings per share exceeding expectations.

In Q3, the company achieved significant growth across various metrics, including annualized recurring revenue, subscription revenue, and performance obligations, surpassing its AI order target ahead of schedule with over $1 billion in orders. This growth was driven by accelerated product innovation and solid execution, leading to a 20% year-over-year increase in product orders. The company returned $3.1 billion to shareholders through share repurchases and dividends, totaling $9.6 billion year-to-date. Enterprise product orders saw a 22% increase, particularly in the Americas and APJC regions, while public sector orders grew 8% globally, with notable U.S. federal growth. Service provider and cloud customer orders grew 32%, supported by triple-digit growth in web scale. Additionally, the AI-powered Meraki solution achieved FedRAMP authorization.

The paragraph highlights strong demand for Cisco's networking and industrial IoT products, with significant growth in orders for various sectors, including web-scale infrastructure, enterprise routing, switching, and WiFi 7. Cisco's campus and data center switching orders also grew, positioning the company as a leader in the market. AI infrastructure orders from web-scale customers surpassed $600 million in the quarter, contributing to a year-to-date total exceeding $1 billion, with a product mix favoring systems over optics. There is also growing momentum for AI orders from enterprise customers, driven by a partnership with NVIDIA to deliver scalable and secure AI deployment solutions.

The paragraph discusses NVIDIA's recent initiatives, including a partnership with Cisco to integrate Cisco Silicon One into NVIDIA's Ethernet networking architecture and create secure AI solutions for data centers. Additionally, NVIDIA announced a multi-phase investment in Saudi Arabia's AI company, HUMAIN, aligning with Saudi Vision 2030, and joined an AI infrastructure partnership with prominent companies like BlackRock and Microsoft. There is also an expanded collaboration with UAE-based G42 to advance scalable secure AI infrastructure for public and private sectors.

The paragraph outlines Cisco's strategic investments and partnerships in AI networking solutions, emphasizing their role as a global leader and collaborator in creating a robust AI ecosystem. Cisco anticipates becoming a key system provider for AI cloud infrastructures, focusing on three pillars: AI training infrastructure for large-scale customers, AI inference and enterprise clouds facilitated by their NVIDIA partnership, and AI network connectivity which requires advanced networks. Additionally, Cisco's security segment saw substantial growth, highlighted by a significant deal involving Splunk's security platforms with a financial services company, marking a notable competitive win and showcasing their go-to-market synergy. New security products also gained over 370 new customers in the quarter.

The paragraph discusses recent innovations and partnerships by the company, emphasizing the integration of security into network infrastructure and the role of AI in addressing security challenges. Key highlights include: the popularity of bundling the Hypershield enterprise with the N9300 Smart Switch; advancements in Cisco XDR and partnerships with Splunk and ServiceNow; the launch of Foundation AI to tackle security issues in the AI era; and the introduction of Cisco's Quantum Network Entanglement Chip for quantum computing applications. Additionally, generative AI is utilized to enhance customer experience and support, with over 60% of support cases now engaging AI-driven automation to streamline and resolve cases efficiently.

The paragraph highlights several key organizational changes at Cisco. Scott, who joined the company in 2020 and helped transition it towards more software and recurring revenue, plans to retire at the end of fiscal year 2025. Mark Patterson, currently Chief Strategy Officer with nearly 25 years of diverse experience at Cisco, will become the new Chief Financial Officer starting fiscal year 2026. Additionally, Jeetu Patel is promoted to President and Chief Product Officer after successfully unifying the product vision and strategy, enhancing innovation for customers and partners over the past nine months.

In the paragraph, Cisco highlights the appointment of Kevin Weil to its Board of Directors and expresses confidence in the company's long-term success in the AI era. The quarter saw strong financial performance, with revenue and earnings per share surpassing guidance ranges, strong margins, and operating cash flow. Total revenue for the quarter was $14.1 billion, an 11% increase year-over-year. Product revenue rose by 15% and services revenue by 3%, with networking and security sectors showing significant growth. Cisco's total Annual Recurring Revenue (ARR) increased by 5% to $30.6 billion, and subscription revenue rose by 15%, accounting for 56% of total revenue. Software revenue saw a 25% increase. Overall, the paragraph indicates robust demand and growth across Cisco's product lines and services.

In Q3, product orders increased by 20% year-over-year, or 9% without Splunk. Geographically, orders rose in the Americas by 27%, APJC by 21%, and EMEA by 4%. By customer market, growth was seen in service provider and cloud (32%), enterprise (22%), and public sector (8%). The non-GAAP gross margin was 68.6%, with a product margin of 67.6% and a services margin of 71.3%. Tariff impacts were better than expected, and the non-GAAP operating margin stood at 34.5%. A favorable non-GAAP tax rate of 17.5% was recorded. The company ended Q3 with $15.6 billion in cash and investments, with $4.1 billion in operating cash flow. A total of $3.1 billion was returned to shareholders, including a $1.6 billion dividend and $1.5 billion in share repurchases. The acquisition of SnapAttack was completed to enhance Splunk's security capabilities.

In the recent quarter, the company performed above expectations, with strong order growth and margins, and remains committed to strategic investments and disciplined spending to maximize growth opportunities. Despite uncertainty regarding tariffs, the company's guidance accounts for existing tariffs and exemptions, including those affecting China, Mexico, Canada, and other countries. They expect to leverage their supply chain to mitigate impacts where possible. For fiscal Q4, the company forecasts revenue between $14.5 billion and $14.7 billion, a non-GAAP gross margin of 67.5% to 68.5%, an operating margin of 33.5% to 34.5%, and earnings per share between $0.96 and $0.98, with an assumed tax rate of 18%.

In the paragraph, the company provides its financial guidance for fiscal year 2025, expecting revenues between $56.5 billion and $56.7 billion, and non-GAAP earnings per share between $3.77 and $3.79. During the Q&A session, Meta Marshall from Morgan Stanley inquires about customer buying behavior amid tariff uncertainties and asks for insights into public sector activity. Chuck Robbins responds, stating there hasn't been a significant change in purchasing behavior, as customers remain committed to technology transitions, particularly AI. He notes minimal evidence of customers pulling purchases forward due to tariff concerns, indicating no widespread advance ordering.

In the paragraph, Scott Herren discusses the lack of significant impact from tariffs and price increases on their supply chain and sales. Despite potential concerns, there has been no notable buy-ahead or delay behavior from customers or channel partners. Inventory levels across channels, including web scalers, have decreased rather than increased. Meraki activations are in line with pre-pandemic levels, and there are no spikes or irregularities in customer orders or sales linearity that would suggest pull-ahead activity. Overall, their supply chain and sales dynamics appear stable and unaffected by tariff announcements.

The paragraph discusses the state of orders and growth in various sectors. It mentions that there was no unusual pattern of orders with future ship dates, and there was neither significant early demand nor delays. Chuck Robbins highlights that the Global Public Sector experienced an 8% growth, with 3% organic growth. The U.S. public sector showed strength, particularly in federal orders, which grew double digits despite the biggest deal being delayed. There were stresses on the civilian side due to agency shutdowns and job security concerns. However, 75% of their federal business is with intelligence and defense, which remained strong. In response to an analyst, Chuck Robbins indicates that he doesn't necessarily foresee a slowdown in global cloud CapEx despite a potential peaking in 2025, as global activity, like sovereign cloud strategies, is increasing.

In the paragraph, Scott Herren and others discuss the ongoing global opportunity in AI, emphasizing that the demand for AI investments is unlikely to slow down soon. Herren speculates that 2025 will not be a peak year for AI, as there are many years of growth ahead, especially in enterprise AI and data center development for AI inferencing. Then, Aaron Rakers from Wells Fargo asks about a large upcoming sovereign deployment opportunity Chuck Robbins mentioned earlier, asking if it is included in their recent order book and the impact of the new G200 silicon chips on the data center switching market. Robbins acknowledges the reference to the recent HUMAIN announcement in Saudi Arabia.

The paragraph discusses an ongoing collaboration involving a $600 million project in the Middle East, led by Tareq Amin, the CEO of HUMAIN, who has a history of working on large-scale network projects. Despite no current orders from this project being included in sales forecasts, the company is optimistic due to their strong relationship with Amin. The G200 chip is highlighted as crucial to system orders, which form a significant part of the project. There is strong demand for these systems, and the company is developing next-generation platforms. The paragraph ends with a transition to questions from analysts, specifically about Cisco's involvement and portfolio in the Middle East.

The paragraph discusses early insights into opportunities for a company, particularly focusing on the enterprise vertical and the Middle East. Chuck Robbins mentions that the Middle East will invest hundreds of billions of dollars in networking, compute, security, and observability, presenting significant opportunities for the company. In the enterprise campus sector, there has been strong demand, including triple-digit growth in WiFi 7 orders and significant growth in the enterprise routing portfolio. Customers continue to heavily invest in modernizing their infrastructure.

The paragraph discusses the importance of modern networks for customers planning to implement genetic AI, as highlighted by Joe and Sami Badri. Michael Ng from Goldman Sachs poses two questions, focusing on the strength of networking orders in the recent quarter, including the impact of a general recovery and the contribution of the WiFi 7 product cycle, as well as inquiring about organic revenue growth rates excluding Splunk. Chuck Robbins responds, noting that the growth in networking orders was widespread, affecting enterprise switching, data center switching, and enterprise routing, with a significant sequential increase in WiFi 7 demand. He views this as part of a typical 12 to 18-month product cycle.

The paragraph discusses the performance and integration progress of Splunk, as it aligns with revenue and profitability expectations. Integration of people is mostly complete, and product integration is progressing well. The acquisition has now been fully integrated into the company's run rate, with no plans to separate organic from inorganic revenue, due to the comprehensive integration. Additionally, the discussion briefly shifts to web scale growth, where Chuck Robbins is asked about the company's transition from InfiniBand to Ethernet and the differentiators that help them gain market share among hyperscalers.

The paragraph discusses the strategic move by customers to transition away from InfiniBand technology, driven by their confidence in new technology that enables running models over native or enhanced Ethernet. It highlights the customers' desire for silicon diversity and emphasizes the importance of having high-quality silicon to remain competitive. The speaker mentions the acquisition made in 2016, which helped in developing Silicon One, a key differentiator in their offerings. The paragraph concludes by stating the integral role of silicon in delivering high-quality systems and ensuring long-term success. Sami Badri then thanks Matthew, and the operator introduces Amit Daryanani from Evercore ISI.

The paragraph is a discussion on the growth and future expectations of AI orders and revenues, as well as operating margins. Chuck Robbins explains that AI orders from large customers are nonlinear and their growth depends on increasing capacity. He notes that if they can execute well and increase capacity, they should continue to see growth. Meanwhile, Scott Herren confirms the observation that while revenues are expected to grow by 3-4% in the upcoming July quarter, operating margins are predicted to decline by 50 basis points, primarily due to changes in gross margins.

The article discusses the impact of tariffs on financial projections, noting a significant cost without mitigation as a driver from Q3 to Q4. Despite this, a positive outlook is maintained with an 11% EPS growth. Simon Leopold from Raymond James asks about a potential campus refresh at Cisco, referencing a previous one in 2017-2018 during a shift to subscriptions and questioning the impact of changing tariffs after July 9. Chuck Robbins responds, acknowledging the relevance of the last refresh but emphasizes the current importance of embedding security into the network for customers, despite current strength in the enterprise campus business.

The paragraph discusses a focus on integrating agentic AI and security services directly into network infrastructure to address AI challenges, as highlighted by a conversation with a CISO from a Fortune 100 company. She emphasized the need for a future architecture that eliminates physical firewalls and embeds security in traffic flows. Additionally, the paragraph touches on the impact of upcoming tariff changes after July 9, which have been considered in the company's Q4 forecast. The paragraph concludes by acknowledging an analyst's comment on a successful quarter and congratulations to Scott on his upcoming retirement.

The paragraph discusses the growth in networking, noting that while there is some expansion, it's slower than expected, particularly in AI-related areas. Chuck Robbins and Scott Herren explain that this is because AI infrastructure hasn't yet contributed significantly to revenue but is expected to start doing so in the year's second half. Concerning data centers and campuses, data centers have higher per port costs due to higher speeds, while campuses see higher volumes, balancing out costs over time. Lastly, Andrew Spinola from UBS questions the nature of large AI orders, inquiring about their size and the types of customers involved.

The paragraph discusses a Q&A session where Chuck Robbins and Scott Herren address the company's performance and guidance. They mention three out of six customers experiencing triple-digit growth, indicating a positive and balanced acceleration across multiple clients. Regarding tariffs, Scott Herren outlines how various tariffs, including those from China, Mexico, and Canada, have been factored into the company's Q4 guidance. Despite not quantifying the exact dollar impact, he emphasizes that all known effects have been considered in the guide. The conversation then shifts as another analyst, Karl Ackerman, acknowledges an extended partnership with NVIDIA, which supports the company's Silicon One family and highlights opportunities in AI computing.

In the given paragraph, Chuck Robbins discusses the progress of AI orders for enterprises and the development of co-packaged optics (CPO) solutions. He mentions that the partnership with NVIDIA has multiple phases, with solutions to be rolled out shortly, leading to an acceleration in enterprise AI orders, currently valued in the hundreds of millions of dollars. On the topic of Silicon One CPO, he notes that despite limited customer demand so far, the company is ready to develop and deliver these solutions based on future customer needs, driven by power and speed benefits.

The paragraph contains a discussion about Cisco's AI pipeline and go-to-market strategy. Chuck Robbins, responding to a question, clarifies that Cisco no longer provides specific pipeline numbers for AI, since past announcements were intended to demonstrate their commitment to the field. He also announces the appointment of Oliver Tuszik as the new head of go-to-market, highlighting his extensive experience. Furthermore, the conversation shifts to a question from analyst Sebastien Naji about Cisco's networking business, particularly the use of white box solutions by hyperscaler customers. Naji inquires whether AI is influencing a shift in spending towards white box solutions, given Cisco's range of offerings from chips to full systems.

In the paragraph, Chuck Robbins discusses the purchasing behaviors of hyperscalers, noting that while some have shifted to buying white box solutions, the majority still purchase integrated systems. He highlights that Cisco can work with customers who choose white boxes by integrating their silicon and managing the process. Scott Herren adds that two-thirds of over $600 million in Q3 orders were for systems, indicating a predicted shift. Robbins expresses satisfaction with Cisco's progress and thanks Scott for his partnership, mentioning Mark Patterson's upcoming role. He concludes by emphasizing Cisco's strong position in the AI market, given their broad technology and portfolio capabilities across networking and security.

The paragraph outlines Cisco's strategic initiatives and partnerships, emphasizing secure AI solutions, key collaborations with companies like NVIDIA, and a newly announced partnership with HUMAIN, AIP investments, and G42 partnership. Cisco highlights its strong global presence, customer trust, and expertise in serving various customer segments, including cloud, enterprise, and public sector clients. The paragraph concludes with information about Cisco's next earnings call on August 13, 2025, and provides contact details for further inquiries.

This summary was generated with AI and may contain some inaccuracies.