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    CSCO
    Earnings call· Apr 2025(Q3 FY25)

    CISCO SYSTEMS Q3 FY25 earnings call CSCO

    May 14, 2025 Source

    Executive summary

    Cisco Q3 FY25 — Strong AI Order Momentum and Above-Guidance Performance

    Cisco delivered a strong Q3 FY25, exceeding revenue and EPS guidance, driven by robust AI Infrastructure orders from webscale customers and solid product order growth. The company is actively expanding its AI strategy through key partnerships and investments, while also navigating executive transitions and the evolving landscape of tariffs. Management remains confident in its innovation pipeline and ability to capitalize on AI opportunities across various customer segments.

    Highlights

    5

    • Revenue of $14.1 billion, 11% YoY growth, above high end of guidance.

    • Non-GAAP EPS of $0.96, above high end of guidance.

    • Webscale AI Infrastructure orders exceeded $600 million in Q3, bringing YTD total to over $1 billion, surpassing FY25 target early.

    • Total product orders grew 20% YoY (9% organic ex-Splunk), demonstrating sustained demand.

    • Total subscription revenue increased 15% to $7.9 billion, representing 56% of total revenue.

    Concerns

    2

    • Non-GAAP operating margin for Q4 FY25 is guided down 50 basis points sequentially due to tariff impact.

    • Public sector orders were up 8% globally, but U.S. civilian side continues to experience stress.

    Guidance & targets

    6
    CategoryTargetConfidence
    Q4 FY25 Revenue
    $14.5 billion to $14.7 billion
    high materiality
    High
    Q4 FY25 Non-GAAP Gross Margin
    67.5% to 68.5%
    medium materiality
    High
    Q4 FY25 Non-GAAP Operating Margin
    33.5% to 34.5%
    medium materiality
    High
    Q4 FY25 Non-GAAP EPS
    $0.96 to $0.98
    high materiality
    High
    Full-Year FY25 Revenue
    $56.5 billion to $56.7 billion
    high materiality
    High
    Full-Year FY25 Non-GAAP EPS
    $3.77 to $3.79
    high materiality
    High

    Segment performance

    12
    SegmentRevenueYoYQoQMargin
    Total Product Revenue
    Strong growth driven by networking and security.
    		$10.4 billion15%——
    Total Services Revenue
    Consistent growth in services.
    		$3.8 billion3%——
    Networking
    Returned to growth, driven by webscale infrastructure, enterprise routing, switching, and Industrial IoT products.
    Growth across most of the portfolioLed by double-digit growth in switching and enterprise routingPartially offset by a decline in servers
    		—8%——
    Security
    Significant growth primarily due to Splunk contribution.
    Primarily driven by growth in offerings from Splunk and SASE
    		—54%——
    Collaboration
    Steady growth across collaboration portfolio.
    Driven by growth in Devices, Webex suite and CPaaS offerings
    		—4%——
    Observability
    Strong growth in observability solutions.
    		—24%——
    Americas Product Orders
    Strong order growth in the region.
    		—27%——
    EMEA Product Orders
    Modest order growth in the region.
    		—4%——
    APJC Product Orders
    Strong order growth in the region.
    		—21%——
    Service Provider and Cloud Product Orders
    Exceptional order growth from webscale customers.
    Driven by triple-digit growth in webscale with 3 of the top 6 webscalers
    		—32%——
    Enterprise Product Orders
    Solid double-digit growth.
    		—22%——
    Public Sector Product Orders
    Positive growth, particularly in U.S. federal.
    Growth in all geographiesU.S. federal orders grew double digits
    		—8%——

    Operational metrics

    25
    Non-GAAP Net Income
    $3.8 billion
    Q3 FY25

    Above the high end of guidance.

    Non-GAAP EPS
    $0.96
    Q3 FY25

    Above the high end of guidance.

    Non-GAAP Product Gross Margin
    67.6%up 70 bps YoY
    Q3 FY25

    Above the high end of guidance range.

    Non-GAAP Services Gross Margin
    71.3%down 30 bps
    Q3 FY25

    Slight decline.

    Non-GAAP Operating Margin
    34.5%
    Q3 FY25

    Above the high end of guidance range.

    Non-GAAP Tax Rate
    17.5%favorable by 1.5 percentage points vs. guidance
    Q3 FY25

    Favorable compared to assumed guidance.

    Cash and investments balance
    $15.6 billion
    Q3 FY25

    Total cash, cash equivalents and investments.

    Share Repurchases
    $1.5 billion
    Q3 FY25

    Part of capital return to shareholders.

    Quarterly Cash Dividend
    $1.6 billion
    Q3 FY25

    Part of capital return to shareholders.

    Total Capital Returned to Shareholders
    $3.1 billion
    Q3 FY25

    Comprised of share repurchases and dividends.

    Total Capital Returned to Shareholders YTD
    $9.6 billion
    YTD FY25

    Total value returned year-to-date.

    Total Product Orders Growth
    20%YoY
    Q3 FY25

    Strong overall product order growth.

    Product Orders Growth (Organic ex-Splunk)
    9%YoY
    Q3 FY25

    Organic growth rate excluding Splunk contribution.

    Product Orders Growth (U.S. Federal)
    double digitsYoY
    Q3 FY25

    Strong growth after a challenging first half.

    Networking Product Orders Growth
    double digits
    Q3 FY25

    Broad-based growth in networking.

    Campus Switching Orders Growth
    high single digits
    Q3 FY25

    Against a tougher prior year compare.

    WiFi 7 Portfolio Orders Growth
    triple-digitsequential
    Q3 FY25

    Strong sequential growth.

    Industrial Internet of Things Portfolio Orders Growth
    35%YoY
    YTD FY25

    Comprised of ruggedized catalyst products.

    Data Center Switching Orders Growth
    double digitsYoY
    YTD FY25

    Strong year-to-date growth.

    Security Orders Growth
    high double digits
    Q3 FY25

    Strong growth, including a large Splunk deal.

    AI Infrastructure Orders (Webscale)
    $600 million
    Q3 FY25

    Exceeded expectations for the quarter.

    AI Infrastructure Orders YTD (Webscale)
    over $1 billion
    YTD FY25

    Surpassed original fiscal year '25 AI order target a full quarter early.

    AI Orders (Enterprise)
    hundreds of millions of dollars
    Q3 FY25

    Showing momentum, not yet in the billions.

    New Customers for Secure Access, XDR, Hypershield
    over 370
    Q3 FY25

    New customers for recently launched security products.

    Support Cases Touched by AI-driven Automation
    over 60%
    Q3 FY25

    Driving productivity and capacity in customer support.

    Industry KPIs

    9
    MetricValueDetails
    Capital return$3.1 billionUSD
    Backlog order book$41.7 billionUSD
    Orders backlog qualityProduct orders up 20%%
    Product orders order growth20%%
    Ai cloud infrastructure orders$600 millionUSD
    Recurring software service revenue$30.6 billionUSD
    Revenue mix by product customer type56%%
    Design wins product cycle transitionstriple-digit%
    Front end vs back end scale up vs scale across m—

    Orderbook & backlog

    5
    Total RPO$41.7 billionQ3 FY25 end

    up 7%

    Product RPOnullQ3 FY25 end

    up 10%

    Total Short-Term RPO$21.1 billionQ3 FY25 end

    up 5%

    AI Infrastructure Orders (Webscale)$600 millionQ3 FY25

    Product mix: >2/3 systems, remainder optics.

    AI Infrastructure Orders YTD (Webscale)over $1 billionYTD Q3 FY25

    Surpassed original FY25 target a full quarter early.

    Product announcements

    6
    ProductTypeDetails
    WiFi 7 portfolioupdate
    AI-powered cloud managed Meraki for Government networking solutionmilestone
    Cisco XDRupdate
    Agentic AI advancements for Cisco XDR and Splunkupdate
    Foundation AIlaunch
    Cisco's quantum network entanglement chiplaunch

    Deals & partnerships

    7
    SnapAttackAdds capability to Splunk in helping organizations power the security operations center of the future.

    Acquisition closed during Q3 FY25.

    NVIDIAExpanded collaboration to create a cross-portfolio unified architecture for AI deployments.

    Partnership aims to simplify and secure AI infrastructure deployment for enterprises, covering both front and back-end networks.

    HUMAIN (Kingdom of Saudi Arabia)Strategic technology partnership for AI infrastructure buildouts in Saudi Arabia.

    New multiphase investment program in Saudi Arabia, with Cisco as a strategic technology partner for the newly announced AI company, HUMAIN. Discussions around networking, compute, security, and observability.

    BlackRock, Global Infrastructure Partners, MGX, Microsoft, NVIDIA, xAI, GE Vernova, NextEra EnergyJoined the AI Infrastructure Partnership to invest in secure, efficient, and scalable infrastructure for AI workloads.

    Collaboration across the industry to create a strong global ecosystem for AI.

    G42Expanded collaboration with UAE-based global technology group to advance secure AI infrastructure and innovation.

    Aims to scale secure AI infrastructure across public and private sectors.

    Major financial services companyLarge multiyear deal for Splunk's security and observability platforms.multiyear

    A win for Splunk from an industry competitor, demonstrating go-to-market synergy.

    ServiceNowNew partnership to integrate their security operations capabilities with Cisco AI Defense.

    Aims to enhance security operations.

    Risks & headwinds

    3
    Tariff impact on gross and operating marginsQ4 FY25 and potentially beyond

    Q4 FY25 non-GAAP gross margin guided 67.5%-68.5% (down from 68.6% in Q3); Q4 FY25 non-GAAP operating margin guided 33.5%-34.5% (down from 34.5% in Q3)

    Mitigation: Leveraging world-class supply chain team, flexibility and agility in operations; will consider pricing only after other mitigation steps.

    Uncertainty around future tariff policiesPost-July 9, 2025

    The 'puck keeps moving' on tariff predictions.

    Mitigation: Built current known tariff assumptions into Q4 FY25 guidance to protect downside.

    Stress in U.S. civilian public sectorOngoing

    U.S. federal orders grew double digits, but civilian side continues to be stressed.

    Mitigation: Focus on other parts of federal business (intelligence and Department of Defense) which constitute 75% of federal business.

    What to watch in Q4 FY25

    4

    AI Infrastructure Order Conversion to Revenue

    H2 FY25
    CurrentAI orders of $600M in Q3, >$1B YTD
    TargetIncreased revenue contribution from AI orders

    Why it matters

    Verifies the monetization of significant AI order intake and contributes to overall revenue growth.

    We said all along that we thought the -- when we put the $1 billion target out for the year, that was a sales target, not a revenue target. But we said we thought that would begin to convert to revenue in the second half of the year. And we saw that -- again, the first piece of that in Q3, and we expect to see a bit of it again in Q4.

    Q&A highlights

    6

    Are customers changing buying behavior due to tariffs, or pulling forward orders? Also, commentary on public sector and federal orders.

    Management sees no meaningful change in customer purchasing behavior or broad-based pull-ahead of orders due to tariffs, citing stable channel inventory, webscaler inventory, Meraki activations, and order linearity. Public sector orders were up 8% globally, with U.S. federal orders up double digits despite a large deal slipping, though the civilian side remains stressed.

    “We really don't see any signs of any notable pull-ahead, or for that matter, push-out.”

    asked by Meta Marshall · answered by Richard Herren

    2 min read6 chapters

    Detailed Narrative

    01

    AI Infrastructure Orders and Strategy

    Cisco reported exceptionally strong AI Infrastructure orders from webscale customers, exceeding $600 million in Q3, bringing the year-to-date total to over $1 billion, surpassing the FY25 target a full quarter early. The product mix for these orders was over two-thirds in systems, with the remainder in optics. The company is pursuing a three-pillar AI strategy focusing on training infrastructure for webscale, inference and enterprise clouds, and AI network connectivity, leveraging its Silicon One technology and partnerships like NVIDIA. Enterprise AI orders are accelerating, currently in the hundreds of millions.

    02

    Splunk Integration and Security Growth

    The integration of Splunk is progressing well, performing in line with or slightly ahead of expectations. Security orders grew in high double digits in Q3, including a large multiyear deal with a major financial services company for Splunk's security and observability platforms, marking Splunk's largest deal ever. Newly launched security products like Secure Access, XDR, and Hypershield added over 370 new customers, with Hypershield often bundled with the N9300 Smart Switch for embedded security.

    03

    Customer Demand Trends and Product Momentum

    Total product orders grew 20% year-over-year (9% organically excluding Splunk), indicating sustained demand despite macro uncertainties. Enterprise product orders were up 22%, public sector up 8% (with U.S. federal up double digits), and service provider and cloud orders were up 32%, driven by triple-digit growth from three of the top six webscalers. Networking product orders saw double-digit growth, including campus switching (high single digits), data center switching (double digits YTD), and triple-digit sequential growth in WiFi 7 orders.

    04

    Strategic Partnerships and Global Expansion

    Cisco announced an expanded partnership with NVIDIA to create a cross-portfolio unified architecture, integrating Cisco Silicon One into NVIDIA Spectrum-X Ethernet networking. The company also announced a new multiphase investment program in Saudi Arabia with HUMAIN, a new AI company, and joined the AI Infrastructure Partnership. An expanded collaboration with G42 in the UAE aims to advance secure AI infrastructure, highlighting Cisco's global leadership in AI networking solutions.

    05

    Innovation Pipeline and AI-Driven Automation

    The company is accelerating its innovation pipeline, focusing on embedding security into networking products and leveraging AI. Recent innovations include AI-powered Cisco XDR for threat detection, agentic AI advancements for XDR and Splunk, a partnership with ServiceNow, and the launch of Foundation AI for security research. Cisco also introduced a quantum network entanglement chip prototype and uses gen AI and agentic systems in customer experience, with over 60% of support cases touched by AI-driven automation.

    06

    Executive Transitions

    Cisco announced CFO Scott Herren's retirement at the end of FY25. Mark Patterson, current Chief Strategy Officer, will succeed him as CFO starting FY26. Jeetu Patel was promoted to President and Chief Product Officer, and Kevin Weil, Chief Product Officer of OpenAI, was appointed to Cisco's Board of Directors. These changes are intended to support Cisco's long-term success and growth in the AI era.

    AI-generated summary of the company’s earnings call. Not investment advice.