MarketWatch First Take: Cisco’s early AI traction won’t save it from an anemic year ahead


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Cisco Systems Inc. may have reported its strongest annual revenue growth in a decade, but it’s headed down a much more anemic path this fiscal year — and even early traction with artificial intelligence won’t save it from that fate.

On Wednesday, the networking giant reported a better-than-expected fiscal fourth quarter, including a 16% boost in revenue that helped bring its annual growth rate to 11%. But Cisco
also delivered a dim outlook for its current fiscal year, which translated to expectations for revenue growth ranging from a flat performance to a roughly 2% increase.

While Cisco’s management explained that comparisons could be confusing in fiscal 2024 because the company used fiscal 2023 to catch up on orders that it previously couldn’t deliver due to supply constraints, they also noted that some telecommunications customers are still “digesting” infrastructure that they bought over the past few months.

Furthermore, executives told analysts that they currently have $500 million in current orders for AI-related equipment, with many of those orders coming from hyperscaler companies that they declined to name. But it is not clear yet how much of that $500 million will come in fiscal 2024, versus in fiscal 2025, because the networking technology is currently in flux and some customers are still trying it out.

Cisco believes 800-gigabyte ethernet networks, which it sells, will offer higher performance than Infiniband technology for highly compute-intensive training of AI applications, but executives hinted that investors may need to be patient.

“As these customers get more comfortable moving from Infiniband to ethernet, I think that’s when we’ll start to see the real impact of AI — and maybe it’s late 2024, but I would suspect into 2025 for sure,” Cisco Chief Executive Chuck Robbins said on the company’s conference call.

“This is very, very early in the build-out of AI infrastructure, ” CFO Scott Herren told MarketWatch after the call. “A decade ago, when [ Inc.’s
] AWS and [Microsoft Corp.’s
] Azure started to build out, they wanted a unique architecture and we were trying to sell them completed systems.” This time around, though, Cisco is offering the option of either networking components or custom chips — or a complete system.

“We will sell you chip sets, white boxes or completed systems,” he explained.

In addition to offering some of the “picks and shovels” of AI, Cisco said it has been embedding AI into its products for years. The technology shows up in features like the ability to block out external noises from Webex video calls, or when IT administrators get warnings about potential security threats.

The company may have learned from mistakes made during the cloud-computing buildout roughly a decade ago, but it could take time for Cisco to realize the benefits of its AI strategy. Until then, investors may want to pump the brakes on any celebrations over the company’s last year of strong growth as they brace for a slower trudge ahead.

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Alexandra Williams
Alexandra Williams
Alexandra Williams is a writer and editor. Angeles. She writes about politics, art, and culture for LinkDaddy News.

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