Cisco Systems, Inc. (CSCO) Earnings Call Transcript & Summary

Good afternoon, everyone. Sami Badri here, Cisco's Head of Investor Relations. With me are Chuck Robbins, our Chair and CEO; Scott Herren, our CFO; and Mark Patterson, our Chief Strategy Officer. You can find Cisco's earnings press release and supplemental information, which includes GAAP to non-GAAP reconciliations, on our Investor Relations website. After this call, the recorded webcast and slides will also be posted to the website. During today's call, we'll reference both GAAP and non-GAAP financial results. Product results will be discussed in terms of revenue, and geographic customer results in terms of product orders, unless otherwise stated. Comparisons will all be made on a year-over-year basis. Please be aware that today's discussion will include forward-looking statements, including our guidance for the fourth quarter and fiscal year 2025. Such statements are subject to risks and uncertainties described in our SEC filings, particularly our most recent 10-K and 10-Q reports, which identify important risk factors that could cause actual results to differ materially from those contained in our forward-looking statements. Regarding guidance, please also refer to the slides and press release accompanying this call for further details. Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure; now I'll turn it over to Chuck.

Appreciate it, Jamie, and thanks everyone for being on the call today. Cisco delivered another robust Q3, as revenue, margins, and EPS each came in above the top end of the ranges we had guided to. We likewise posted healthy expansion in annualized recurring revenue, remaining performance obligations, and subscription revenue, all of which underpin our results going forward. On top of that, web-scale customers placed AI infrastructure orders with us totaling more than $600 million during Q3, lifting our year-to-date figure to comfortably above $1 billion and beating our initial fiscal year '25 AI order goal by an entire quarter. Our core business keeps generating robust cash flows, which backs our pledge to provide steady capital returns; during Q3 we handed back $3.1 billion to shareholders via buybacks and dividends, bringing value returned so far this year to $9.6 billion. This overall strong showing stemmed from quicker product innovation and dependable execution across our teams, which fuels ongoing demand for what we offer. Total product orders rose 20% versus a year earlier, or 9% organically once Splunk is excluded. Even with macro conditions uncertain, that shows the meaningful outcomes we bring to customers in the AI era. Let's examine demand more closely, by customer market. Also worth mentioning: during the third quarter of fiscal '24, we had six weeks in which Splunk was contributing. In Q3, enterprise product orders were up 22% compared with the prior-year period, and that was aided by double-digit growth in both the Americas and APJC. Orders from the public sector increased 8%, with improvements seen in each geography, since governments around the world continue to rely on Cisco as an end-to-end technology partner. Notably, after a tough first half, U.S. federal orders achieved double-digit growth in Q3. In addition, over the quarter, FedRAMP authorization from the U.S. government was granted to our AI-powered cloud managed Meraki for government networking solution. Service provider and cloud clients kept placing strong orders, up 32% from the same period last year, powered by triple-digit gains in web scale, with three among the top six web scalers each posting order growth in the triple digits. Now some detail on demand from a product perspective. Orders for networking products climbed double digits, lifted by web-scale infrastructure, enterprise routing, switching, and our industrial IoT offerings. In Q3, campus switching orders grew high-single digits against a harder year-over-year comparison, reflecting that enterprise customers remain eager for our campus portfolio. We also saw triple-digit sequential growth in Q3 orders for our WiFi 7 portfolio. Through the year to date, demand for the industrial Internet of Things lineup we offer — which consists of ruggedized catalyst products — has climbed 35% compared with the prior-year period. As strategic infrastructure and manufacturing increasingly relocate onshore into the United States, Cisco occupies a strong position to connect and safeguard these capital-intensive investments at scale. Orders for our data center switching are up by a double-digit percentage through the year so far, measured against the equivalent period a year ago. Gartner's Magic Quadrant for data center switching recently named Cisco a market leader. That recognition shows our ability to handle any data center switching scenario, and it reflects our aim of simplifying operations while strengthening security — a crucial consideration when critical applications are being deployed. As I said before, orders for AI infrastructure that came in from web-scale clients during the quarter were extraordinarily robust, surpassing $600 million and pushing our year-to-date figure far beyond the $1 billion goal we set for fiscal year '25. Just as we anticipated, more than two-thirds of those orders involved systems, with the rest in optics, which shows how much web-scale customers now rely on our technology for their AI training needs. Momentum in AI orders from enterprise clients keeps building as this big, emerging market opportunity begins to open up. For their AI rollouts, enterprises want solutions that are simple, seamless, scalable and secure, and through our growing partnership with NVIDIA we stand ready to provide exactly that. This quarter, we announced our intention to create a single, unified architecture that covers our entire portfolio. Under this plan, NVIDIA is going to adopt Cisco Silicon One as the only third-party silicon used in its Spectrum-X Ethernet networking reference architecture. On top of that, Cisco is going to develop systems that work together, combining NVIDIA Spectrum silicon with Cisco's operating system software. This will allow customers to simultaneously standardize on Cisco Networking and NVIDIA technology inside the data center, covering both front-end and back-end networks. We also shared details about a Cisco secure AI factory built with NVIDIA, where protection is woven in across the entire chain — spanning the application all the way to the workload and the underlying infrastructure — through offerings like Cisco AI Defense and our hybrid mesh firewall, enabling enterprise customers to construct and safeguard data centers used for creating and operating AI workloads. Then yesterday we had news about a fresh multiphase investment initiative in the Kingdom of Saudi Arabia. A new AI company named HUMAIN was launched there, and as a strategic technology partner, we're going to assist them with building out their AI infrastructure; this collaboration aligns with Saudi Vision 2030, supporting the Kingdom's transition toward a diversified digital economy and boosting how competitive it is both globally and regionally in the age of AI. On top of that, we've joined an AI infrastructure partnership alongside BlackRock Global Infrastructure Partners, MGX, Microsoft, NVIDIA, XAI, and the energy companies GE Vernova and Nextera Energy. The goal of this group is to direct funding toward infrastructure that is secure, efficient, and scalable enough to handle AI workloads. In addition, we announced a wider collaboration with G42, the Global Technology Group based in the UA, to advance how secure AI infrastructure and innovation can be scaled across both public and private sectors. These investments and partnerships highlight our position in the market as a worldwide leader and the partner of choice for AI networking solutions, as well as our commitment to collaborating with others throughout the industry to build a strong global ecosystem for AI. Also, we expect a sovereign AI cloud opportunity to emerge before long, and Cisco will act as a primary systems supplier for those large build-outs of AI training and inference clusters. As we think about all that AI enables for Cisco, let me repeat how we break it down into three distinct but connected pillars. The first pillar is AI training infrastructure for web-scale customers — 5 of the 6 biggest web scalers are deploying combinations of our Cisco 8-K, Silicon One optics and optical systems. The second pillar is AI inference and enterprise clouds. Faster innovation on our part in both hardware and software, together with our NVIDIA partnership, is meant to make AI infrastructure deployment simpler and lower-risk for the enterprise. Number three is AI network connectivity. To get ready for AI agents and applications being deployed everywhere, customers are using our technology platforms as a way to modernize, secure, and automate how their networks run. When it comes to generative AI, the network faces fundamental constraints, and what's needed are networks that are ultrafast, low-latency, and energy-efficient — something we're able to provide. Now on to security. During Q3, orders increased by a high double-digit percentage. Among our security orders was a sizable multiyear agreement with a major financial services company covering Splunk's security and observability platforms, and our combined sales force was what drove it. This represented Splunk taking business from an industry competitor, and it stands as a strong proof-point of our go-to-market synergy. It was also the biggest deal Splunk has ever done. During the quarter, the security offerings we rolled out not long ago—Secure Access, XDR, and Hypershield—together brought in more than 370 new customers.

Most of the new Hypershield enterprise buyers we're seeing are pairing it with the new N9300 Smart Switch, and that's thanks to something only we can do: put security right into the network fabric itself. Now I want to walk through a few standout items from a pipeline of innovation that keeps speeding up. For Agentic-AI, the challenge that will define everything is safety and security, and we've just rolled out a number of innovations built to help security pros take advantage of AI's power while never losing sight of keeping things secure. These include Cisco XDR, a tool that ties together attack telemetry from networks, endpoints and cloud environments, and taps fresh AI-driven offerings so that security crews can quickly make sense of intricate threats. Cisco XDR and Splunk now feature Agentic AI improvements that simplify spotting and handling threats. A fresh alliance with ServiceNow is set to merge that company's security operations strengths with Cisco AI Defense, and Foundation AI has also debuted — a group of leading AI and security specialists dedicated to creating advanced technology targeting core security challenges of the AI age, along with innovative open source instruments, such as the first reasoning model built to strengthen security applications. Just last week, we introduced the Quantum Network Entanglement Chip from Cisco — a groundbreaking prototype. It brings real-world quantum networking use cases within reach, so quantum computing's future gets here sooner. These use cases will tackle tough customer problems and drive innovation forward in many industries, from optimizing supply chains to accelerating drug discovery. Beyond that, across our customer experience organization, we're using Gen AI and genetic systems to maximize customer value, deliver excellent experiences, raise productivity, and build capacity. Today, AI-driven automation handles over 60% of support cases, and that's lifting the proportion of complex cases we can resolve within 1 day. On top of that, since more customers are using our AI support assistant, the number of low severity cases has fallen. Also, thanks to our AI renewals agent, our renewal specialists can now handle more work. So, as you can tell, we're generating a tremendous amount of innovation, and I'm eager to reveal additional customer-focused offerings at Cisco Live next month. Before passing the call to Scott, I'd like to make a few key organizational announcements. Following thorough deliberation, Scott has chosen to step down when fiscal year '25 comes to a close. Scott joined us back in 2020, when the world was facing a lot of uncertainty, as most of you are aware. He played a key part in moving us toward software and recurring revenue. Because of that shift, our business became more predictable and shareholder value went up. I'd like to express my thanks to Scott for everything he's contributed to Cisco. I'm thankful to have had him as a partner while we worked through so many unprecedented circumstances side by side. I'm pleased to announce that starting day 1 of fiscal year '26, Mark Patterson, who currently serves as our Chief Strategy Officer, will step in as Cisco's new Chief Financial Officer. During Mark's close to 25 years with Cisco, he has taken on leadership positions spanning finance, strategy and operations. Additionally, he accumulated more than 10 years of experience in sales, occupying positions that covered all customer segments and geographies. In his latest capacity, overseeing our corporate strategy, development and incubation organization, Mark has concentrated on linking our longer-term strategy and investments with our immediate and urgent growth opportunities. The scope of his background, combined with his extensive understanding of Cisco and our customers, partners and investor community, places him in a distinctive position to assist in speeding up Cisco's growth in this new role. I'm equally pleased to share that Jeetu Patel has been promoted to President and Chief Product Officer. Over the past 9 months, under Jeetu's direction, he's united our product vision with our strategy and significantly accelerated our innovation pipeline, with a focus on delivering greater value to both our customers and our partners. We also shared yesterday that Kevin Weil, who serves as Chief Product Officer at OpenAI, has joined Cisco's Board of Directors. News like this reinforces how confident we are in Cisco's ability to succeed and remain resilient over the long term in the age of AI. Looking back at the quarter, demand for what we offer is clearly evident across all the markets we serve. Our innovation pipeline keeps speeding up as we embed security deeply into our networking products, and our robust performance is driving our capital allocation model, delivering substantial value back to our shareholders; now I'll hand it to Scott for further detail on the quarter and our outlook.

Appreciate that, Chuck. We turned in a robust quarter, with both revenue and EPS landing above the top end of the ranges we had guided to, along with healthy margins and operating cash flow. Revenue for the quarter totaled $14.1 billion, which is an 11% rise compared with the same period a year ago. Non-GAAP net income came to $3.8 billion, and non-GAAP earnings per share was $0.96. Now let me go deeper into our Q3 revenue. Product revenue overall reached $10.4 billion, a gain of 15%, while services revenue came in at $3.8 billion, which is up 3%. Networking rose 8%, with increases across the bulk of the portfolio, paced by double-digit gains in switching and enterprise routing, though a drop in servers partly offset that. Security climbed 54%, mostly on the strength of growth in our Splunk and SASE offerings. Collaboration advanced 4%, lifted by growth in Devices, Webex Suite and our CPaaS offerings, and observability rose 24%. Turning to our recurring metrics. Total ARR finished the quarter at $30.6 billion, which is 5% higher, with product ARR growing 8%. Subscription revenue overall grew 15% to $7.9 billion, accounting for 56% of Cisco's total revenue. Software revenue in total was 25% higher at $5.6 billion, while software subscription revenue rose 26%. Total RPO stood at $41.7 billion, up 7%. Product RPO increased 10%, and short-term RPO overall was $21.1 billion, up 5%. Q3 product orders grew 20% versus a year earlier; setting Splunk aside, product orders rose 9% year-over-year. Now for product orders by geography. The Americas grew 27%, EMEA was up 4%, and APJC rose 21%; within our customer markets, service provider and cloud increased 32%, Enterprise grew 22%, and public sector was up 8%. Non-GAAP gross margin overall landed at 68.6%, 30 basis points higher than a year ago and above the top end of our guidance range. Non-GAAP product gross margin was 67.6%, up 70 basis points, helped by productivity gains and Splunk, though pricing was a partial offset. Non-GAAP services gross margin came to 71.3%, a decline of 30 basis points. Tariffs affected our gross margin less than we had estimated in the guidance we gave last quarter. Our emphasis on profitability and financial discipline remains, with non-GAAP operating margin at 34.5%, surpassing the top end of our guidance range. Our non-GAAP tax rate for the quarter was 17.5%, which came in 1.5 percentage points better than what our guidance had assumed, largely because of a bigger tax benefit from the foreign-derived intangible income deduction along with one-time benefits. Moving on to the balance sheet. We closed Q3 with $15.6 billion in total cash, cash equivalents and investments. Operating cash flow reached $4.1 billion, up 2%, mainly on revenue and earnings growth. On capital allocation, we gave back $3.1 billion to shareholders in the quarter, split between $1.6 billion for our quarterly cash dividend and $1.5 billion in share repurchases, leaving $15.4 billion available under our share repurchase program. We keep investing in our innovation pipeline, both organically and inorganically. In Q3, we completed the SnapAttack acquisition, bringing additional capability into Splunk and assisting organizations in enabling the security operations center of tomorrow. In summary, it was another strong quarter, with results on both the top and bottom lines coming in above what we had anticipated, fueled by robust order growth and margins. Our attention stays on strategic investments in innovation throughout the business so we can make the most of the considerable growth possibilities we foresee going forward, all supported by careful cost discipline. That potent mix keeps driving our robust cash flow production along with our capacity to deliver substantial value back to shareholders. Now for guidance. Although there has been some movement regarding tariffs, uncertainty persists. Our outlook presumes existing tariffs and exemptions stay as they are for the duration of the quarter. Those consist of: China at 30%, partly offset by an exemption covering semiconductors and certain electronic components. Mexico and Canada at 25% on the components and products that don't qualify under the present U.S. MCA exemptions. Other nations at a 10% base rate through the conclusion of the 90-day pause on July 9 and afterward returning to country-specific reciprocal tariffs, partly offset by an exemption for semiconductors and certain electronic components. Lastly, a modest effect from steel and aluminum tariffs plus retaliatory tariffs; we will keep using our world-class supply chain team to help lessen the impact where it makes sense, drawing on the flexibility and agility built into our operations in recent years. The size and scale of our supply chain gives us certain unique advantages as we serve customers around the world. For fiscal Q4, our guidance is that we expect revenue between $14.5 billion and $14.7 billion, we expect non-GAAP gross margin between 67.5% and 68.5%. Non-GAAP operating margin should land between 33.5% and 34.5%, and non-GAAP earnings per share should come in between $0.96 and $0.98, and we are assuming a non-GAAP effective tax rate of roughly 18%. For the full year fiscal '25, our guidance is — we expect revenue between $56.5 billion and $56.7 billion, and non-GAAP earnings per share should come in between $3.77 and $3.79. Sami, let's now move into the Q&A.

Thanks, Scott. Ahead of opening things up for questions on this call, I want to remind everyone on the analyst side to limit themselves to 1 question plus 1 follow-up. Operator, please bring in the first analyst waiting.

Thanks. Congratulations on the quarter. I have two questions, perhaps. First, what are you observing regarding how customers are buying at present, considering the uncertainty tied to certain tariffs you mentioned, and did you notice any possible pull forward in April? Then, as a second question, perhaps any remarks concerning the public sector and federal, around those same topics. Thank you.

Yes, Meta, thank you. I will — let me offer some remarks, and then I will have Scott provide you with some data points regarding this pull-ahead matter. But I would say, from the standpoint of customer behavior, first, we have not observed any significant shift in the way they purchase. Thus, we have not seen any customers truly pulling back in a fundamental way; they remain committed to the technology transition. I believe the AI transition is simply so critical that they will keep spending until they absolutely must halt. And I believe that at this moment, they remain at ease. Regarding pull forwards, well, I am certain there was an order occasionally from a customer who chose to move something ahead because they worried about tariffs. However, we examined a great many data points to determine whether we detected any indication of widespread pull ahead activity, and we did not. And I will have Scott quickly share a few of those data points, and then I will address the public sector.

Thank you, Chuck. And Meta, I want to point out as well that we didn’t create much of a pull-ahead incentive by discussing price hikes. As you’ll recall, when we addressed how tariffs would affect us, we said we had several levers available. Our supply chain group is truly world-class. After the tariff situation settles down, we can take certain actions to reduce the impact, just as we demonstrated with the China tariffs during the first Trump administration; and pricing would only come into consideration after that; so we never generated a strong incentive. But we examined — after talking with our channel partners, who incidentally also saw no evidence of customers buying early or postponing, and with our own sales force, we examined channel inventory, which you might expect to have risen. It didn’t. In fact, it declined. We collaborate closely with the web scalers and we know not only what’s on their purchase orders, but also what’s physically in their possession. In fact, web scaler on-hand inventory decreased over the quarter. We examined Meraki activations. We can track when a serial number x departs the manufacturing facility and when it becomes activated — when we had accumulated inventory at customer sites, you may remember that the gap between shipping and activation grew longer. It has remained exactly where it was, which means it’s back in line with the pre-pandemic level. So nothing there suggests otherwise. Naturally, we examine linearity and especially whether we noticed a surge during the third month, since, as you may recall, the reciprocal tariffs were announced on April 2; and therefore if any buying ahead had occurred, that month would have appeared heavier. That’s not what we observed. The linearity matched precisely what we had witnessed in the past. We review our pipeline for pull-aheads or push-outs, and nothing there was unusual. And the final metric I’d mention is that we examine instances where a customer places an order now but asks for a later delivery date. A small amount of that always occurs. But we check whether there was a pattern of many orders arriving with a future ship date, and that too showed nothing unusual. So we genuinely see no evidence of any significant pull ahead or, for that matter, push out.

Okay Meta, I'll take the public sector piece. I realize we've included this on the relevant slides, I believe, but our Global Public Sector business grew 8%. When you isolate just the organic figure, that was a 3% increase worldwide — here in the U.S., funnily enough, what stood out was federal. So this quarter we recorded double-digit order growth in U.S. Federal. And honestly, that happened even though our largest deal slipped out. So that was a good sign. I'd note there's still pressure continuing on the civilian side, clearly, given agencies that got shut down and workers who are anxious about losing their positions — there's simply a great deal of human capital anxiety across the civilian side — yet it's worth keeping in mind too that this represents roughly 1/4 of our federal business, while 75% of it comes from Intelligence and Department of Defense. So on the whole, public sector made us happy this quarter.

Thank you. Meta. Michelle, can we go to the next analyst.

Hello. Meta is increasing its CapEx 70% during this year, and across the board you're seeing quite robust growth. So my question is — I realize networking is just now ramping up — do you believe 2025 will be the peak year? CapEx will probably decelerate, and decelerate significantly. In a climate where cloud CapEx is decelerating, what becomes of Cisco? Thanks.

Hello Tal, I appreciate it. To start, I'm not sure I'd characterize cloud CapEx that way, especially worldwide, given the announcements coming out of the Middle East this week, with sovereign cloud strategies being constructed across the globe. So globally speaking, I don't believe that will happen; and from my conversations with these customers, I don't expect them to have enormous appetite for pulling back. Perhaps the mix will shift somewhat in terms of what they spend capital on to support enterprise customers using these models via inference and similar areas; but I don't expect 2025 to be a peak year. My sense is this has many years ahead of it.

And Tal, just as a reminder, once we finish standing up all that public cloud infrastructure for training, there's a much bigger opportunity sitting in enterprise AI, right, as they develop the ability to run inferencing within their own data centers; so I'd say that — taken together, the AI opportunity still has multiple years ahead of it right now.

Thank you Tal. Michelle, we can move to the next analyst.

Yeah, I appreciate it, Sami, and congratulations on the quarter, plus Scott, best wishes on your upcoming retirement. I suppose I'll bundle a couple of quick questions together here. So, Chuck, I believe in your prepared remarks you mentioned a sizable sovereign deployment opportunity that's on the near horizon. My first question about that is whether it's already sitting in your order book — the $600 million you recorded during the most recent quarter? And if it isn't, how are you sizing up those sorts of opportunities? Then a fast follow-up: I think during the last quarter you rolled out or began shipping your 51.2T — I believe that's the G200 silicon. Could you update us on what you're observing on the data center switching front, and whether that truly turns into a catalyst year across the coming couple of quarters? Thank you.

Yes. Thanks, Aaron; so I believe you're referring to the HUMAIN announcement that came out yesterday, or that the Saudis made earlier this week, when they revealed this company's creation. We've spent months working alongside them on this, and the short answer is that none of the $600 million in orders came from them. They're only just beginning. We have a group of folks heading back to the Middle East next week to spend additional time with them. I think it's worth noting, regarding HUMAIN, that its CEO is someone by the name of Tareq Amin, and to give you a bit of background on Tareq, he served as CTO at Reliance JIO when we constructed that network alongside them across several years. After that, he held the CEO role at Rakuten when we partnered with him to build the Open RAN mobile network in Japan. So we've stayed engaged with Tareq ever since he relocated to Saudi Arabia, and he's a close friend, a longtime friend. We've been carrying out large-scale projects together with them for a dozen years at this point; so he's familiar with us. We know him well, and we're eager about that opportunity. So I'd say that isn't factored into any of our forecasts from our sales teams or anything at this stage. On the second point, the G200 chip, I'd say it sits at the center of any of these systems orders. So I mentioned that out of the $600-plus million, two-thirds came from systems, and those systems would run on the G200, and I'd tell you that as of right now, those customers are saying that they — if we could ship more capacity, they'd purchase more; so it's genuinely performing well at the moment; and we have a number of additional chips at various stages in the process for the next-generation platforms that we're also eager about.

Thank you Aaron, Michelle, we can move to the next analyst.

Joseph Lima Cardoso speaking in place of Samik here. I'd like to continue with what was said regarding the Middle East announcements as well. Perhaps this is a two-part question — specifically, could you say more about the way Cisco intends to take part in this, especially in connection with the portfolio? And I realize it's still early, but is there any initial perspective you could offer regarding when these opportunities might arrive and how large they could be for the company, since investors are considering potentially incorporating them into the model? Then I have one more question after that. Thank you.

Joe, why don't you go ahead and pose your follow-up, and we'll simply take both of them.

Yes, definitely. My next question is about the enterprise segment, especially Campus. It's obvious that orders are coming in well within that enterprise segment. However, I'd like to know if you can say more about what customers are telling you on this topic, as well as the momentum you're seeing regarding the order backlog — orders and backlog — and how you see the opportunity tied to the recovery now versus our conversation 90 days ago.

All right. As for the Middle East, I'll just note that Tareq told me they are behind and plan to catch up. My sense is that their spending is going to be substantial, and they'll push it out the door as quickly as they can. When all is said and done, we're talking hundreds of billions of dollars flowing out. Take a look at the HUMAIN site — scroll down and you'll find the names of their first strategic partners listed there. As for what we've been discussing with them, the focus has been on networking, compute, security and observability, which adds up to a solid opportunity on our end. In my view, you should think of them as being on par with any of the big web scalers in the United States. When it comes to the enterprise campus segment, we did see robust ordering activity in campus switching. Orders for WiFi 7 grew by triple digits compared with the prior quarter. Our enterprise routing portfolio also posted quite strong gains during this quarter. So customers, as we see it, remain heavily committed to upgrading their infrastructure. What we're hearing from these customers, broadly speaking, is that once they prepare to launch generative AI—especially given how real-time this communication has to be—the network will be completely essential. They're all determined to guarantee that, even if the exact shape of those applications isn't clear to them at this moment, they're certain they'll require the most advanced networks available. That, in my view, is the force behind things at present.

Thank you Joe. Michelle, we can move to the next analyst.

Hello, and good afternoon. I appreciate you taking the question, and Scott, congratulations on your forthcoming retirement. I'm very grateful for all the time and assistance you've given me over the years. Now, regarding my 2 questions. First, I was hoping you might expand a bit on how strong networking orders were during the quarter. What portion of that came from the broad recovery and areas such as campus, and how much did the WiFi 7 product cycle add? Also, should we anticipate that continuing through the next 12 months to 18 months or thereabouts? Then second, a quick administrative one. Could you please provide the organic revenue growth rates for the company and for the segment excluding Splunk, if you happen to have those available? Thank you.

All right. Regarding the strength in networking orders, I'd say it was broad-based. As I mentioned previously, we observed it within enterprise switching. We observed it in — we saw expansion in data center switching. We observed it in — we saw significant growth in enterprise routing; we saw triple-digit sequential growth in WiFi 7. I do agree, as you noted, that this is a 12-month to 18-month cycle. Once the — once customers start down this path, well, it's simply — it's a typical upgrade cycle that we observe — that we have observed historically. The way I'd frame it is we've discussed the reality that there's a window and there's essentially a period during which we normally roll out refreshed products, be it the WiFi portfolio or the campus switching portfolio. So when that gets underway too, that will further boost that continuing opportunity, I believe, as we move toward — as we look ahead. So Scott, would you like to cover organic rev a bit?

Absolutely, and Michael, I appreciate both the feedback and your question. To start, I want to note that Splunk's results are right in line with what we expected — or perhaps just a touch better — when it comes to both the top line and profitability, which matches the guidance we shared with you a quarter ago. Things have gone very smoothly on the integration front. On the personnel side, integration is essentially finished now across every function. Work on integrating the products is still moving forward nicely, and this marks the quarter in which we officially reached the one-year mark since the acquisition closed, during Q3. So as of now, it's simply baked into our run rate. My intention is not to separate organic from inorganic going forward; given how deeply we've integrated things everywhere, drawing that distinction becomes increasingly difficult, so I don't expect to provide that figure anymore, since it's now just folded into our overall run rate.

Thank you, Michael. Michelle, we can move to the next analyst.

Hello, and I really appreciate you fielding this. Also, Scott, thanks once more for everything you've done across the past 2 years. I'd like to ask about web scale. Clearly, the growth you're posting there remains extremely strong. Chuck, perhaps you could explain what's behind that continued momentum, how quickly the shift from InfiniBand to Ethernet is happening, and which of the larger advantages are letting you capture additional share among the hyperscalers? Thanks.

Sure. Thank you, Matthew. From the very beginning, I believe these customers intended to migrate off InfiniBand; what determined the timing was how confident they became in the technology; today their confidence is high, and they're pleased with how it lets them train these models using native Ethernet, or a version of enhanced Ethernet that we provide. Over the past several years, I think we've discussed their interest in having diversity in silicon, and we believe that was among the main reasons we were brought in at the start. These days we're shipping top-tier products within the schedule they require — when you consider what they expect from their partners in these products, essentially you have a system comprising software, silicon, and additional components; the truly valuable elements there are the operating system along with the silicon; and since lots of them are moving aggressively toward running their own proprietary operating systems on these platforms, having silicon becomes essential if you hope to stay competitive in this space over the long run. So it's a real stroke of luck that we completed that acquisition in 2016. We've got an excellent team building Silicon One. They maintain tight relationships with these customers. They engage with them daily. And in my view, the silicon is the crucial advantage that's genuinely — I mean, we're providing top-tier systems and all the rest they're after: the services, the experience, the supply chain, every one of those things that counts enormously. Yet ultimately, without the Silicon, succeeding here over the long term would likely be nearly impossible for us.

Thank you Matthew. Micheal, we move to the next analyst.

Yes, I really appreciate you letting me ask. I believe I've got 2 things too. To begin with, your AI orders came in at $1 billion. My understanding is that arrived a quarter earlier than you'd anticipated, and it seems you're experiencing some ongoing momentum ahead with the sovereign and enterprise segments you mentioned. I'm curious, how ought we to consider growth rates going forward regarding AI orders or AI revenues? It would help if you could lay that out a bit, in terms of what growth rates lie ahead. Then, if I may ask a follow-up for Scott, regarding your July quarter guide, Scott, unless I'm wrong, it suggests revenues rise 3%, 4% quarter over quarter, yet operating margins fall 50 basis points. Could you perhaps explain why margins are declining in July even as revenues climb, and best of luck in your retirement as well. Thank you.

Thanks Amit. Regarding the AI orders, how should one view the growth? What I'd note is simply that these are large customers, and these orders don't follow a linear pattern. So we'll see what happens. But I mean, during the prior quarter, we did 350, or roughly that. In this quarter, we went past 600. And like I mentioned before, if we were actually able to — if we could boost capacity, they would purchase more. So I believe if we can deliver and boost capacity, we ought to keep seeing this ramp, provided we are delivering and executing, which is something I've consistently said: we must execute, because if we fail these customers, then we remain on the sidelines for some time. So we — the teams are putting in a lot of effort, and that's my view on it. These orders aren't linear. And provided — if we can keep boosting the capacity, then we'll keep seeing that business get better. Scott, would you like to discuss July?