Cisco Q4 2024 Earnings: CEO Robbins Touts Security Growth, Customer AI Prep

Cisco CEO Chuck Robbins says his team is “shifting hundreds of millions of dollars into AI,” including AI networking for cloud, AI infrastructure, silicon and cybersecurity.

Cisco Systems crossed $1 billion to date in AI orders with webscale customers and predicts another $1 billion in AI product orders this fiscal year.

On the San Jose, Calif.-based vendor’s Wednesday call with analyst – on which executives covered results from the fourth fiscal quarter ended July 27 – Cisco CEO Chuck Robbins said his team is “shifting hundreds of millions of dollars into AI,” including AI networking for cloud, AI infrastructure, silicon and cybersecurity – part of the reason for mass layoffs confirmed just before the call.

“It's a meaningful shift, but we feel like the market is moving so quickly, we have to do that,” he said.

Cisco Q4 2024 Earnings

On the call, Scott Herren, executive vice president and CFO of Cisco – a member of CRN’s 2024 Channel Chiefs – said the restructuring and layoffs of about 7 percent of the global Cisco workforce is not about saving costs, but “finding efficiencies across the company so that we can pivot more resources, much like we did last year, into the fastest growth areas within the company.”

More than half of Cisco’s research and development (R&D) spend is in AI, cloud and cybersecurity, he said. “Think of it more as reallocating.”

Herren added on the call that the company should see savings “by putting more work into lower-cost locations.”

Davidson Moved, Patel Heads Combined Business Units

Along with confirming a reported workforce reduction, Cisco revealed Wednesday that Jonathan Davidson has moved from his role as executive vice president and general manager of the networking business to serving as an adviser to Robbins.

Jeetu Patel, EVP and general manager of the security and collaboration business units, will lead a unified networking, security and collaboration organization and take on the role of EVP and chief product officer. The changes are effective immediately.

Patel has been with Cisco for about four years. He came to the vendor after about five years with Box, leaving the content cloud provider in 2020 with the title of chief product officer and chief strategy officer, according to his LinkedIn account.

Davidson has spent a combined 22 years with Cisco, departing in 2010 for a seven-year stint with Juniper Networks before returning to Cisco in 2017, according to his LinkedIn account.

“He believes deeply in the power of connection and has demonstrated care and commitment to his teams, Cisco’s innovation and technology, and communities around the globe through his passion for providing digital access for all,” Robbins said in the post. “We are grateful for his many years of leadership.”

On Wednesday’s earnings call, Robbins said that Cisco’s “biggest competitive differentiation in the marketplace” is “deep, cross-integration across the portfolio.”

The pace of AI innovation and the growing combination of security and network led to Robbins’ decision “to have a single leader,” he said.

In the Wednesday blog post, the vendor said that consolidating the three business units should help “accelerate our product innovation and bring our portfolio together in a more integrated way than ever before.”

“It will also allow us to provide a better, unified experience for our customers and partners, while delivering unique solutions to help them achieve their technology outcomes and drive business growth,” Robbins said in the blog post.

The vendor will also work to “to integrate the Splunk product line into this new organization at the right time.”

Patel “has led by example with his creative vision and intense focus on innovation and swift execution” and helped increase growth in the security and collaboration businesses, according to Robbins’ post.

“We've seen double-digit bookings growth in our devices business as a result of AI innovation and our open strategy that embraces competing meetings solutions in the market,” Robbins said. “He continues to champion innovation in generative AI across our security and collaboration offerings, bringing differentiated capabilities to Webex and driving the vision for a unified AI Assistant across Cisco.”

$1B In AI Orders

Cisco’s $1 billion in expected AI orders in the 2025 fiscal year “doesn't have a meaningful amount of enterprise built into it” at this time, with Cisco only now “beginning to see the enterprise pipeline build a bit,” Robbins said on the call.

He added that the $1 billion should be primarily back-end network deployments and a combination of Ethernet and optics.

Robbins said on the call that enterprise customers have been “upgrading their infrastructure in preparation for AI.”

Enterprise platform deals have included customers “buying the entire portfolio to refresh their infrastructure,” and some customers “are updating their data center infrastructure and their core network infrastructure to be ready for smaller training models on their own private data and/or inference,” Robbins said. Customer use cases have ranged from enabling AI-powered robotics to AI-powered supply chain visibility.

“In some cases, they're taking some of the dollars that they've set aside for AI to actually spend it on modernizing their infrastructure in order to get ready for that,” Robbins said. “We're beginning to see customers actually prepare for AI applications – even though, in many cases, they may not know the full range of what they will be deploying. But they know they need to be ready.”

To that end, customers have been updating their switching infrastructure and wireless, Robbins said. Data center switching grew double digits year over year, he said. And Cisco saw “three of the top four hyperscalers deploying our Ethernet AI fabric.”

The AI era means customers improving cybersecurity postures and building a more resilient and agile digital footprint, Robbins said.

“We believe we are well positioned to be the key beneficiary of AI application proliferation in the enterprise,” Robbins said. “Our customers continue to put their trust in Cisco, and we are very well positioned to be their strategic partner for this era.”

Security, Splunk

When asked if Cisco has seen any growth related to the faulty update from security rival CrowdStrike that downed about 8.5 million Microsoft Windows devices in July, Robbins acknowledged, “It's hard for me to say.”

“We added 230 more XDR customers,” he said. “We're pushing 600 customers on that platform, which– it's a pretty significant decision when customers make that decision, so that's encouraging.”

Cisco’s cloud edge security product “is actually ramping even faster than XDR did,” he said. The vendor also has 2,200 customers using Cisco’s AI assistant for security product.

“That's very encouraging as well,” Robbins said. “We're really optimistic about what the teams have been doing in this space.”

The vendor reported a double-digit number of deals that have closed with Cisco and Splunk sales forces selling together, and Splunk saw double-digit growth in annual recurring revenue. Splunk has a six- to nine-month sales cycle normally, so the subsidiary is progressing “maybe even a little ahead of what I would have expected at this point,” Robbins said.

Robbins said that Cisco is investing in “cross-sell incentives for Splunk on the Cisco sales force.”

“We're going to incent the security sellers inside Cisco,” he said. “We're looking at the Splunk sales force over time being able to sell the security portfolio from Cisco.”

Gary Steele, Cisco’s president of go-to-market and formerly president and CEO of Splunk, “is focused on simplicity” and “more frontline quota-carrying reps,” Robbins said.

“He's focused on investing in more capacity in the enterprise space, where these platform deals are more prevalent,” he said. “More systems engineering and a real doubling down on focus on core networking and infrastructure. So I think you're going to see a real renewed effort to get the team's focus not only on some of the software assets and security, but really doubling down on core networking.”

When asked about what customers are buying networking and security together, Robbins said it is mostly by large enterprises and large public sector users.

“In the quarter, we had large enterprise and large public sector customers that actually executed all these nine-figure deals,” he said. “You're seeing it particularly at the cloud edge, when you see SD-WAN and cloud security coming together. But we're also beginning to see it – and we're going to actually drive it – in the data center with Hypershield, where you have security embedded deeply in the network.”

Robbins said Hypershield will be “available this fall."

Q4 2024 In Depth

Cisco reported 14 percent growth year over year in product orders. Excluding Splunk, the growth was 6 percent. “The period of inventory digestion by our customers is now largely behind us, as we expected,” Robbins said.

Public sector demand proved “particularly strong worldwide, driven by federal spending in the U.S. and strength in” Asia Pacific, Robbins said.

Enterprise demand was strong, with Cisco signing “several $100 million-plus transactions in the quarter with global enterprises who are leveraging the breadth of our technology platforms to modernize and automate their network operations and deploy next generation machine learning and AI applications,” Robbins said.

Cisco saw $13.6 billion in revenue for the fourth fiscal quarter, a 10 percent decrease year over year but coming in above the high end of the vendor’s guidance range. Splunk brought in $960 million in total revenue for the fourth quarter.

Product revenue fell 15 percent year over year during the quarter to $9.9 billion, according to Cisco. Within product revenue, networking had the steepest decline at 28 percent.

Collaboration product revenue was flat. Cisco saw “growth in our cloud calling and CPaaS (communications platform-as-a-service) offerings” and “declines in meetings and devices,” Herren said. Security product revenue including Splunk grew 81 percent year over year. Taking out Splunk, security grew 6 percent

In security, Herrin said the vendor saw “growth in SASE and double-digit growth in network security.”

Observability with Splunk grew 41 percent. Taking out Splunk, observability grew 12 percent. Services revenue grew 6 percent year over year to $3.8 billion.

The vendor reported $27.4 billion in total subscription revenue, including Splunk, making up 51 percent of total revenue. Cisco saw $29.6 billion in total annualized recurring revenue (ARR). Splunk contributed $4.3 billion in ARR. The total was up 22 percent year over year.

Cisco’s total software revenue was $18.4 billion, up 9 percent year over year, according to the vendor. Software subscription revenue was $16.4 billion, up 15 percent year over year and making up 89 percent of total software revenue.

FY24 In Depth, Looking Ahead

For the fiscal year, Cisco brought in $53.8 billion in revenue, down 6 percent year over year.

Splunk brought in $1.4 billion of total revenue for the fiscal year. For the first quarter of Cisco’s 2025 fiscal year, the vendor predicts revenue between $13.65 billion and $13.85 billion.

For the 2025 fiscal year, Cisco predicts revenue between $55 billion and $56.2 billion. Cisco’s stock traded at about $48 a share after market close Wednesday, up about 5 percent.