Splunk, security and AI are likely to come up during Cisco’s latest quarterly earnings report.
How Cisco Systems can benefit from the artificial intelligence explosion. Splunk integration. And overcoming hurdles in networking.
These are among the likely subjects to come up when the San Jose, Calif.-based vendor reports its third fiscal quarter earnings Wednesday. The quarter ended April 27.
The pressure to show improvement continues following Cisco’s second consecutive cut to expected revenue, customers not activating delivered equipment and mass layoffs announced.
[RELATED: Cisco CEO Chuck Robbins: Moving Fast To Win The AI Battle]
Cisco Third-Quarter Earnings
Cisco previously put expected revenue for the third fiscal quarter between $12.1 billion and $12.3 billion. At least one research firm, Melius Research, believes that Cisco can beat that expectation, hitting $12.64 billion in the quarter.
Melius Research expects $1.2 billion in security, up 29 percent year over year, and $6.5 billion in networking, down 28 percent year over year.
Read on for more of what to expect from Cisco’s quarterly earnings report Wednesday.
Meeting The AI Moment
Cisco Chair and CEO Chuck Robbins (pictured) told CRN in its April magazine issue that the vendor is determined not to miss the AI moment and learn lessons from the transition into the cloud computing market.
The Splunk acquisition gives Cisco a boost in big data, AI-enabled security and observability, Robbins said.
“We’re just trying to move fast,” he said. “I think that the thing I would say is that if you look back at the original cloud transition, I think Cisco was ill-prepared for that and didn’t handle it very well. And in this case, I think we’re super well-positioned.”
Robbins has “three big pillars” for Cisco’s AI vision:
- The fundamental infrastructure on which web-scale and enterprise customers can run large language models and advanced AI workloads
- The transition of Cisco’s product interfaces to operate in natural language via AI-enabled assistants
- Enabling customers to use AI to tap into the massive data sets available through Cisco and Splunk products
Cisco has already introduced a handful of AI Assistants baked into some of its products, including AI Assistant for Webex and AI Assistant for Cisco Firewall, which employ natural language to make it easier for users to make changes or deploy new policy rules. Executives might have some updates to share around usage and adoption of its AI offerings.
Despite Robbins’ comments, at least one research firm has questioned Cisco’s ability to benefit from the AI rush. In a Monday report, Melius Research said that “despite a partnership with Nvidia, there really isn't an AI narrative in Cisco's networking portfolio, and its enterprise exposure limits upside. … Any real AI traction from Cisco would be a big surprise.”
Last quarter, Cisco said it saw an AI pipeline of $3 billion, which Melius Research called “fairly vague given prospects for ‘pipeline’ conversion and timing.”
Cisco may have to contend with weakness in networking in the short run, with CDW, No. 4 on CRN’s 2023 Solution Provider 500, citing “networking as one of its weakest areas in March,” according to Melius.
The firm predicts a 28 percent decrease year over year to the Cisco networking business, down 9 percent quarter over quarter. “Their big issue has been that customers are not activating equipment that was delivered and sitting onsite,” according to Melius Research. “This type of thing is similar to ‘pantry loading.’ The phenomenon has hit orders, along with some share loss to Arista. … networking (outside of Arista) may still be a little hung over from Covid.”
The Security Opportunity
Cisco’s earnings come off another news-filled RSA conference, with some highlights from the networking giant including expanded Hypershield capabilities, an integration between Splunk’s core technology and Cisco’s extended detection and response (XDR) platform, and new features for Duo Security
In a report Monday from KeyBanc, the firm called the Splunk-Cisco integration a way to make the vendor “incrementally competitive (or more defensible)” to SIEM offerings by CrowdStrike and Palo Alto Networks.
Cisco was also revealed as a signee onto the Secure by Design pledge from the U.S. Cybersecurity and Infrastructure Security Agency.
Cisco executives will likely want to reiterate some of these innovations for analysts on the call, and some analysts may want Cisco executives to go into deeper details about the news.
KeyBanc’s first quarter of 2024 survey of resellers resulted in Cisco tying for third with CrowdStrike as the vendor most likely to be a security spend consolidator and offer a broad security platform, coming in at 35 percent of respondents.
Ahead of Cisco and CrowdStrike were Microsoft and, No. 1, Palo Alto Networks. Cisco had ranked first in the prior quarter’s survey at 52 percent, ahead of the tied Microsoft and Palo Alto Networks.
Cisco’s position dropped quarter over quarter as a number of resellers reported top-performing endpoint security vendors, according to KeyBanc. Cisco came in fifth place with 15 percent in the latest survey, down from 20 percent in the prior quarter. Ahead of Cisco were Palo Alto Networks, Microsoft Defender, SentinelOne and, No. 1, CrowdStrike.
One of the positive results for Cisco in the survey was the vendor gaining in resellers’ minds as the vendor best positioned for a secure access service edge (SASE) or zero trust network access (ZTNA) offering, tying with Netskope for fourth place with 32 percent of respondents. Cisco received 29 percent of responses in the prior quarter.
The two vendors came behind Microsoft, Palo Alto Networks and, No. 1, Zscaler.
Splunk Timing
This marks Cisco’s first quarterly earnings report since the March close of the Splunk deal, and so analysts may have fresh questions around when Cisco and, by extension, its partners should see the benefits of the acquisition.
Robbins and his executives might have some news saved for June at the Cisco Live and Splunk .conf24 user conferences. But perhaps some hints will get dropped on Wednesday of what’s to come.
In the KeyBanc VARs survey, resellers ranked Splunk No. 3 among security analytics vendors gaining the most traction with customers, tying with CrowdStrike and LogScale and growing to 27 percent from last quarter’s 24 percent. Microsoft Sentinel and No. 1, Arctic Wolf, came in ahead of Splunk and CrowdStrike.
In a Monday report, Melius Research said that Cisco closing the Splunk deal earlier than expected could help the vendor beat revenue expectations. The firm said the deal “could be a bright spot going forward in terms of growth and put a halo around recent innovations in security (XDR, Hypershield, etc.)”
The firm predicted $400 million added to Cisco’s third fiscal quarter revenue for Splunk and $1.1 billion for the next quarter.
HPE-Juniper Competition
Analysts may seek Cisco executives’ thoughts on the pending purchase of Juniper Networks by Hewlett Packard Enterprise, which passed shareholder voting in April and should close before the end of the year.
Robbins told CRN that HPE-Juniper doesn’t match Cisco’s AI prowess and comes up short when it comes to security.
“At the end of the day, customers care about high-performance, secure network infrastructure,” said Robbins. “That’s what they care about. And we’re applying AI to networking data as well. So I think the thing that’s missing there [with HPE-Juniper] is security. With the Splunk acquisition, we just improved our position in the security world. So customers who want to run platform-based, secure networking infrastructure, we’re going to have the right answer. And I bet if you ask the customer, ‘If you had to prioritize security or some AI-driven dashboard …’ they’re going to choose security all day long. And I think that’s the big differentiation that we have.”
The HPE-Juniper mashup faces “product overlap issues” with portfolios that need to be rationalized, which will “probably present opportunity for us in the near term,” Robbins said.
Some Positive Infrastructure Trends
In an April report from KeyBanc, the investment firm said that VARs surveyed in 2024’s first quarter suggested that infrastructure projects saw an “uptick in terms of priority for the second survey in a row amid mixed” macroeconomics.
Hybrid cloud infrastructure management, storage and cloud data management, and advanced networking were key beneficiaries of digital transformation, according to the survey, with Cisco and Nutanix resellers meeting or beating targets during the quarter. The Cisco number was up 20 points quarter over quarter, hitting 88 percent of respondents, according to KeyBanc.
The number of respondents saying their Cisco practices fell below expectations went down quarter over quarter from 32 percent of respondents to 13 percent.
The survey also ranked Cisco the top-performing networking vendor in the quarter, a distinction it has held since at least the first quarter of 2023, according to KeyBanc. But HPE did close the gap somewhat, coming in at 48 percent of respondents compared with Cisco’s 67 percent.
In the prior quarter, HPE received 33 percent of responses compared with Cisco’s 76 percent.
The percentage of survey respondents that said Cisco outperformed expectations compared with every other vendor during the quarter fell quarter over quarter, coming in at 23 percent in the latest survey compared with 33 percent the prior quarter. Ahead of Cisco were Fortinet, Microsoft, CrowdStrike and, the best performer, Palo Alto Networks. Cisco tied with Zscaler and came ahead of SentinelOne and Proofpoint, among other vendors.
An April report by Morgan Stanley said that the firm’s interviews with VARs showed “customer preference for Infrastructure Monitoring as the central focus and landing point for Observability adoption.”
However, customers seeking to consolidate spending and “do more with fewer platform vendors while replacing legacy solutions” meant that younger vendors such as Datadog took share from Splunk, IBM and others, according to Morgan Stanley.
