Cisco is ready to take on the AI transformation

Nov. 22, 2024
According to CEO Chuck Robbins, new acquisitions, product order momentum, and a three-pronged focus on AI position the company for wins as the industry evolves.

Cisco delivered $13.8 billion in revenue for its first fiscal quarter of 2025, down 6% year over year but on the high end of the company’s guidance range. CEO Chuck Robbins said the quarter’s results were supported by growth in annualized recurring revenue, subscription revenue, and remaining performance obligations. Total subscription revenue increased 21% to $7.8 billion, accounting for 57% of the company’s total revenue.

Cisco also reported order momentum, with product orders growing 20% year over year in the quarter. Public sector orders were up only 2%, which Robbins attributed to lowered Federal spending and delayed deals, but enterprise product orders were up 33%, driven by good performance in the Americas and EMEA. Service provider and cloud product orders also grew, which he attributed to growth in web scale.

“In Q1, our web scale customers placed AI infrastructure orders in excess of $300 million,” said Robbins. “Our AI pipeline continues to be strong. We have earned more design wins and remain confident that we will exceed our target of $1 billion of AI orders this fiscal year from web scale customers.”

Ready for AI

Touching on what he called the “AI transformation,” Robbins said Cisco is focused on three primary areas. First is a significant investment in the AI training infrastructure required for web scale customers; the second area is AI network connectivity and platforms in the enterprise space, and the final focus is working with cloud providers and enterprise customers to meet the increased capacity requirements that come with AI application deployment.

“Overall, our Q1 results highlight continued strong demand for Cisco technologies driven by the need for modern, resilient networks as AI begins to scale.” said Robbins. “Findings from our new global AI partner study show that IT partners around the world are anticipating a transformative wave of AI technology demand driven by infrastructure, cybersecurity, and customer experience, which they expect to fuel the majority of their revenue over the next four to five years. With the breadth of our portfolio, we are uniquely positioned to capitalize on this AI technology demand as customers are investing in their critical infrastructure to prepare for AI.”

Product order growth

Robbins reported that Cisco’s networking portfolio saw double-digit product order growth in the quarter, driven in part by switches.

“Looking at data center switching in particular,” he said, “we have seen three consecutive quarters of double-digit order growth and an acceleration from Q4 into Q1. This shows our competitive strength in this key market, the power of our Nexus brand, and the build-out of private cloud infrastructure by our customers. We expect this momentum to continue as customers are showing significant interest in our 400 gig and 800 gig switches based on Silicon One.”

Security orders grew 100% year over year, a win Robbins said was driven by Splunk and the company’s renewed security strategy and new product pipeline. Orders in Observability were up 36%, driven by ThousandEyes and Splunk Observability.

CFO Scott Herren reported that total product revenue was $10.1 billion, down 9% year over year, and service revenue was $3.7 billion, up 6% year over year. Networking was down 23%, a decline he attributed to an elevated level of shipments a year ago.

“We saw strong order growth across our networking products as customers have worked down inventory and deployed the networking products we shipped them last year,” said Herren.

Product orders were up 17% in the Americas, up 26% in EMEA, and up 25% in APJC, and Cisco ended the quarter with ARR at $29.9 billion, an increase of 22%. Product ARR grew 42%. Total software revenue was $5.5 billion, up 24%, and software subscription revenue was up 35%.

Investing for growth

Herren reported that Cisco is continuing to invest organically and inorganically in its innovation pipeline.

“During Q1, we closed two software acquisitions: Deepfactor to accelerate innovation in the Cisco Security Cloud and augment our secure access offerings, and Robust Intelligence, which brings enhanced protection for AI models throughout their life cycle from development to production,” said Herren.

Cisco also plans to acquire Deeper Insights AI, which Herren explained would support both engineering and the customer experience.

“These investments are highly complementary to our internal R&D and are in line with our strategy to strengthen our position in security and AI with targeted strategic M&A,” he added. “We remain focused on making strategic investments and accelerating innovation across our business to best capitalize on the significant growth opportunities we see ahead, all underpinned by disciplined expense management.”

For the next quarter, Cisco expects revenue to be in the range of $13.75 billion to $13.95 billion and expects a range of $55.3 billion to $56.3 billion for the full fiscal year.

For related articles, visit the Business Topic Center.

For more information on high-speed transmission systems and suppliers, visit the Lightwave Buyer’s Guide.

To stay abreast of fiber network deployments, subscribe to Lightwave’s Service Providers and Datacom/Data Center newsletters.

About the Author

Hayden Beeson

Hayden Beeson is a writer and editor with over seven years of experience in a variety of industries. Prior to joining Lightwave and Broadband Technology Report, he was the associate editor of Architectural SSL and LEDs Magazine. 

Sponsored Recommendations

Meeting AI and Hyperscale Bandwidth Demands: The Role of 800G Coherent Transceivers

Nov. 25, 2024
Join us as we explore the technological advancements, features, and applications of 800G coherent modules, which will enable network growth and deployment in the future. During...

Next-Gen DSP advancements

Nov. 13, 2024
Join our webinar to explore how next-gen Digital Signal Processors (DSPs) are revolutionizing connectivity, from 400G/800G networks to the future of 1.6 Tbps, with insights on...

On Topic: Tech Forecast for 2025/ What Will Be Hot

Dec. 9, 2024
As we wind down 2024, Lightwave’s latest on-topic eBook will examine the hot topics for 2025. AI is at the top of the minds of optical industry players supporting...

From Concept to Connection: Key Considerations for Rural Fiber Projects

Dec. 3, 2024
Building a fiber-to-the-home network in rural areas requires strategic planning, balancing cost efficiency with scalability, while considering factors like customer density, distance...