Cisco

The networking refresh cycle is finally showing up in order data. Enterprises that deferred campus and data center upgrades through 2022 and 2023 are starting to place orders again, and Cisco's Catalyst 9000 and Nexus lines are the default choice for most IT departments. Add in the AI infrastructure buildout driving demand for high-speed switching in hyperscaler networks and the setup looks solid.

Cisco guided fiscal Q3 2024 revenue in a range that was below what the street wanted, and the explanation was customers working down elevated product inventory they bought during the supply chain crunch years. That inventory digestion story has been dragging on longer than anyone expected and it's compressing the near-term growth outlook.

Cisco reported fiscal Q2 2024 revenue of approximately $12.8 billion, down about 6% year over year, with product revenue declining double digits partially offset by services growth. Management maintained full-year guidance but the tone on the earnings call around the pace of recovery in product orders was notably cautious.

Cisco's software and subscription revenue as a percentage of total revenue has been climbing steadily and is now approaching 55% of the mix. That's a fundamentally different business than the box-pushing hardware company of a decade ago, though the market still seems to value it like a legacy hardware vendor most of the time.

Cisco's partnership with NVIDIA around AI-ready infrastructure is worth paying attention to. They're co-selling validated designs for AI clusters that combine Cisco networking with NVIDIA DGX systems, and that positions Cisco to capture infrastructure spend that goes alongside GPU purchases rather than competing directly with NVIDIA.

Cisco closed its $28 billion acquisition of Splunk in March 2024, marking the largest deal in company history. The move is supposed to bolt on Splunk's security and observability data platform directly into Cisco's existing security portfolio.

Does anyone have a view on how Cisco's security segment actually competes with CrowdStrike and Palo Alto now that Splunk is in the fold? Cisco has Talos threat intelligence, Duo for identity, Umbrella for DNS-layer security, and now Splunk SIEM, but it still feels like a collection of parts rather than a unified platform.

The layoffs Cisco announced in February 2024, cutting roughly 5% of the global workforce or about 4000 jobs, are being framed as a restructuring to invest in AI and security priorities. But when you're cutting headcount at the same time you just spent $28 billion on an acquisition, it raises real questions about the underlying demand environment for the core business.