The Six Five team discusses Cisco Q4FY24 Earnings
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Transcript:
Patrick Moorhead: Cisco issued fourth quarter earnings. They also talked about a 7% RIF and a $1 billion restructuring charge. Stock did great. Why? Because it registered a beat for the quarter and had a very solid Q1 guide. I think the biggest thing here is this inventory digestion. And that was inventory actually sitting at customers, has been worked through and that has been an issue over the last two quarters. There was a giant spree of buying. I don’t think Cisco was stuffing the channel, that their customers and their channel just couldn’t get through.
The other new thing that I noticed that came out on the call is the customers talked a lot about all in customer purchases. I think really showing the synergistic benefit of having all of these different kinds of companies, from SaaS all the way to heavy iron with big switching and everything in between. Even custom ASICs out there. And they talked about customers across switching, routing, wireless, security, Splunk, non Splunk observability, and even collaboration. So there were also a major change in leadership. Jonathan Davidson who ran overall products for the company, he is moving into an advisory role, reporting into CEO, Chuck Robbins. And Jeetu Patel who has started off in collaboration, then moved in security, he is now going to maintain the Chief Product Officer role spanning, yes, every product that’s out there. And I think this is a real symbolic move, Daniel, that the company has done a great job shifting from a big iron company, being more additive, making big iron as a service, plus adding all of the different types of software and subscription models that they have. And Jeetu is software guy, is services guy. So, I think that is a meaningful symbol, an affirmation of not only where the company has moved from, but where the company is going.
Daniel Newman: Yeah, that’s a good breakdown. Some substantial changes. The company has been aggressively moving from this big iron, heavy service contract to a subscription ARR software, seeing over 50% of its revenue now moving that direction. The company is trying to attach itself meaningfully to this AI shift. I think this digestion period that you spoke of and that Chuck spoke about has been a bit of a headwind for the company for several quarters in a row, where basically there was a bunch of infrastructure invested in to stand up directionally AI networking and other parts of the AI stack. And then it stalled out a bit, had some underperforming quarters, some underperforming guidance. The company has now done two RIFs over the last quarter plus. I think it was something around 5%, and then another 7,000 now. I don’t know exactly what percent that is, but it’s somewhere around 13,000, I think, over the last couple of quarters.
The street loves that, by the way. I put a post out. I’m not being cynical about it, and I understand there are people behind these numbers, but we saw, going back a few quarters, and Mark Zuckerberg pulled the plug on some of the big investments, got lean, got fast. The market just absolutely loves and rewards that. The company’s taken a billion dollar restructuring on to do this. Seems that they’re going to compensate well, give good packages to people and move on. It’s a very different looking organization right now, and there’s some bigger considerations in the market. I’ve been spending a lot of time looking at this, thinking about this and reflecting on this as to how the size that companies need to be to execute the revenue. And we’re seeing this more revenue per headcount as a big focus now for the tech industry. I think your point about Jeetu makes a lot of sense. Look, all these software businesses are starting to converge, these subscription and software and service businesses. We knew for some time that the collaboration business had been struggling for growth. I think portfolio-izing, is that a word, portfolio-izing?
Patrick Moorhead: I don’t know. You created it, buddy. Centralize it.
Daniel Newman: Make it-
Patrick Moorhead: Don’t be a Richard.
Daniel Newman: Portfolio-izing all this stuff provides some clarity to the market on the direction. And I think the company also has to acknowledge where growth is coming from, where the growth is going to come from, and where growth is not going to come from. The company needs to attach to AI, it needs to really win networking, it needs to focus on that edge to cloud, AI network infrastructure. Not everything is going to be the mega hyper scale size. And of course, Cisco has its internet connectivity business. And that’s substantial too, but you haven’t really heard the name Cisco and AI mentioned in the same sentence very much. Now, what you have heard over the years is Cisco and NVIDIA compared for their respective bubble that people saw of the network era and the internet era with Cisco and now the AI era, I vehemently disagree with that. I disagree that they’re on the same trajectory. I see how people have arrived there. What I do think is Cisco has a substantial role to play. There’s a lot of infrastructure being built out at the enterprise, and I think it’s made some good moves. I think the Splunk acquisition, while it was expensive, I think over time, that will play out well. The company needed that ARR, that subscription, and that jolt to investors that it has successfully made the pivot, and I think it has.
So I’ll pause there, stop there. There’s a lot to say, but I think it’s good. People want growth. And that’s Chuck’s big focus, has to be Chuck Robins’ big focus right now, is getting growth. This year was a down year. It was a down year, but they beat, they’re getting efficient, they’re expanding the portfolio, and now, the next few quarters, it’d be great to start to show that growth taking place.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
