It’s no surprise to IEEE Techblog readers that Cisco’s networking business – still its biggest unit, generating nearly half its total sales – reported <$6.9 billion in revenue for the three-month period ending in January (Cisco’s second fiscal quarter).  That was down 3% compared with the same quarter the year before. For its first half year, networking sales dropped 14% year-over-year, to about $13.6 billion.

However, total second-quarter revenues grew 9% year-over-year, to just less than $14 billion, boosted by the Splunk (security company) acquisition in March 2024.  Thanks to that deal, Cisco’s security revenues more than doubled for the first half, to about $4.1 billion. But net income fell 8%, to roughly $2.4 billion, due partly to higher costs for research and development, as well as sales and marketing expenses.

Cisco groused about an “inventory correction” as networking customers digested stock they had already bought, but that surely is not the case now as that inventory has been worked off by its customers (ISPs, telcos, enterprise & government end users). Cisco CFO Richard Scott Herren now says “The demand that we’re seeing today a function of extended lead times like we saw a couple of years ago. That’s not the case. Our lead times are not extending.”

Currently, Cisco firmly believes that Ethernet connectivity sales to owners of AI data centers is an “emerging opportunity.” That refers to Cisco’s data center switching solutions for “web-scale” and enterprise customer intra-data center communications.  The company’s AI strategy is described here.

Image Courtesy of Cisco Systems

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AI investments “will lead to our networking equipment being combined with Nvidia GPUs, and that’s how we’ll accomplish that in the future,” CEO Chuck Robbins told industry analysts on a call to discuss second-quarter results, according to a Motley Fool transcript.  “There’s so much change going on right now from a technology perspective that there’s both excitement about the opportunity, and candidly, there’s a little bit of fear of slowing down too much and letting your competition get too much ahead of you. So, we saw solid demand,” he said.

However, Cisco will face mighty competition in that space.

• Nokia is targeting the same opportunity and last month said it would spend an additional €100 million (US$104 million) on its Internet Protocol unit annually with the goal of generating another €1 billion ($1.04 billion) in data center revenues by 2028.
• Arista Networks is another rival in this market, selling high performance Ethernet switches to cloud service providers like Microsoft.
• Nvidia, whose $7 billion acquisition of Mellanox in 2019 gave it effective control of InfiniBand, an alternative to Ethernet that had represented the main option for connecting GPU clusters when analysts published research on the topic in August 2023.  Just as important, the Mellanox division of Nvidia also is a leader in Ethernet connectivity within data centers as described in this IEEE Techblog post.
• Juniper Networks (being acquired by HPC) is also focusing on networking the AI data center as per a white paper you can download after filling out this form.

During the Q & A, Robbins elaborated:  “On the $700 million in AI orders, it’s a combination of systems, silicon, optics, and optical systems. And I think if you break it down, it’s about half is in silicon and systems. And it continues to accelerate. And I’d say the teams have done a great job on the silicon front. We’ve invested heavily in more resources there. The team is running parallel development efforts for multiple chips that are staggered in their time frames.  They’ve worked hard. They were increasing the yield, which is a positive thing. And so, we feel good about it, but it’s a combination of all those things that we’re selling to the customers.”

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Enterprise AI:

“What we’re seeing on the enterprise side relative to AI is it’s still — customers are still in the very early days, and they all realize they need to figure out exactly what their use cases are. We’re starting to see some spending though on specific AI-driven infrastructure. And we think as we get AI pods out there — we got Hyperfabric coming. We got AI defense coming.

We have Hypershield in the market. And we got this new DPU switch, they are all going to be a part of the infrastructure to support these AI applications. So, we’re beginning to see it happen, but I think it’s also really important to understand that as the enterprises leverage their private data, their proprietary data, and they’ll do some training on that and then they’ll run inference obviously against that. We believe that opportunity is an order of magnitude higher than what we’ve seen in training today. We’re going to continue to innovate and build capabilities to put ourselves in a better position to be a real beneficiary as this continues to accelerate. But as of today, we feel like we’re in pretty good shape.”

“If you look at AI defense with the AI Summit that we did recently, there’s — I think there’s about 20-some-odd customers who are interested in going to proof of concept with us right now on it. We had almost half the Fortune 100 there for that event. So, I feel good about where we are. It will turn into greater demand as we just continue to scale these products.”

Telco use of AI Edge Applications:

“We see some of the European network operators are looking at delivering AI as a service,” said Robbins. “We see a lot of them planning for AI edge applications that are sitting at the edge of their networks that they’re managing for customers.”

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Cisco raised its guidance and now expects revenues for the full year of between $56 billion and $56.5 billion, up from its earlier range of $55.3 billion to $56.3 billion.

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References:

https://www.fool.com/earnings/call-transcripts/2025/02/12/cisco-systems-csco-q2-2025-earnings-call-transcrip/

https://www.lightreading.com/ai-machine-learning/buoyed-by-ai-cisco-sees-lots-of-telcos-planning-edge-rollouts

https://www.cisco.com/site/uk/en/solutions/artificial-intelligence/index.html

https://www.juniper.net/content/dam/www/assets/white-papers/us/en/networking-the-ai-data-center.pdf

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