Welcome to Cisco's First Quarter Fiscal Year 2024 Financial Results Conference Call. At the request of Cisco, today's conference is being recorded. If you have any objections, you may disconnect. Now, I would like to introduce Sami Badri, Head of Investor Relations. Sir, you may begin.

Welcome, everyone, to Cisco's first quarter fiscal year '24 quarterly conference call. This is Sami Badri, Cisco's new Head of Investor Relations, and I'm joined by Chuck Robbins, our Chair and CEO, and Scott Herren, our CFO. Having followed Cisco on the sell-side for 10 years, I couldn't be more excited to join the company and look forward to engaging with you all in my new role. By now, you should have seen our earnings press release. A corresponding webcast with slides, including supplemental information, will be available on our website in the Investor Relations section following the call. As a reminder, we have simplified how we report product and service revenue and customer markets. Starting this quarter, we are reporting revenue in the following five categories: networking, security, collaboration, observability, and services. We are also reporting customer markets in the following three categories: enterprise, public sector, and service provider and cloud. Additionally, as is customary in Q1, we have made certain reclassifications to prior period amounts to conform to the current period's presentation. Income statements, full GAAP to non-GAAP reconciliation information, balance sheets, cash flow statements, and other financial information can also be found in the Financial Information section of our Investor Relations website. Throughout this conference call, we will be referencing both GAAP and non-GAAP financial results, and we'll discuss product results in terms of revenue and geographic and customer results in terms of product orders unless stated otherwise. All comparisons made throughout this call will be on a year-over-year basis. The matters we will be discussing today include forward-looking statements, including the guidance we will be providing for the second quarter and full year of fiscal 2024. They are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent report on forms 10-K which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. With respect to guidance, please also see the slides and press release that accompany this call for further details. Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. I will now turn it over to Chuck.

Thanks, Sami, and welcome to Cisco. I hope everyone is doing well and thanks for joining us today. We delivered a solid start to fiscal 2024, with the strongest first quarter results in Cisco's history in terms of revenue and profitability. Our Q1 revenue was at the upper end of our guided range. EPS exceeded the high end of our guidance, driven by strength in gross margins and expense control, resulting in strong operating leverage. Our disciplined expense management and the tailwinds from our business model transformation resulted in our highest non-GAAP gross margin in over 17 years and record non-GAAP operating margin. We also returned $2.8 billion in Q1 via cash dividends and share repurchases, delivering on our capital return commitments to our shareholders. As we continue to transform our business towards more software and recurring revenue streams, fueled by accelerated innovation, we remain committed to driving operating leverage and shareholder returns. Now, turning to the demand environment, after three quarters of exceptionally strong product delivery, our customers are now focused on installing and implementing these unprecedented levels of products. The bottleneck that we previously saw in the supply chain has now shifted downstream to implementation by our customers and partners. Our order lead times and backlog have largely returned to normal levels. As deliveries rose, the channel inventory we track at our distributors also steadily declined during this time. Simply put, customers are now taking time to onboard and deploy these heightened product deliveries. While the macro challenges we have discussed still exist, we believe this implementation phase is the primary reason for the slowdown in new orders. We saw it mostly with our larger enterprise, service provider, and cloud customers, and it was most pronounced in October. Based on our analysis, we believe this phase is temporary and estimate there is an additional one to two quarters' worth of shipped orders in customers' hands still waiting to be deployed. This has near-term consequences for revenue and our outlook for the next couple of quarters, which Scott will discuss shortly. However, it does not change our longer-term confidence. We expect product order growth rates to increase in the second half of the fiscal year. We also remain very confident in the foundational strength of our business and future growth opportunities given the criticality of our technologies. Overall, our win rates are stable, cancellation and return rates remain below pre-pandemic levels, and we have gained market share, all of which are testaments to the strength of our portfolio and how it aligns to our customers' most pressing needs. As we look to enhance our capabilities in higher growth areas, in the first quarter of fiscal '24, we announced our intent to acquire Splunk. The combination of Cisco and Splunk will create an end-to-end data platform to enhance our customers' digital resiliency with our complementary capabilities in AI, security, and observability. The combination of Cisco and Splunk also directly supports our strategic objectives around driving higher levels of growth, software capabilities, and ARR. Together, we will bring trusted innovation leadership and an outstanding go-to-market engine and a world-class culture that will help our customers achieve their technology outcomes with innovative products and solutions. Now, let me comment on our quarterly performance. As I previously mentioned, we delivered strong revenues in Q1, which was broad-based across our product portfolio and driven by our customers' investments in generative AI, cloud, security, and full-stack observability. As expected, we continued to gain market share with the release of the calendar Q2 results, recording another quarter of year-over-year gains in three of our largest networking markets: campus switching, wireless LAN, and SP routing. In webscale, we see continued momentum in AI, with three of the top four customers deploying our hyperscale ethernet AI fabric. We also already have line of sight to over $1 billion in orders for AI infrastructure from major cloud providers in fiscal year '25. To help advance AI, we are working with key GPU and storage partners to create solutions including ethernet technologies, GPU-enabled infrastructure, and joint tested and validated reference architectures with a commitment to open networking for AI. Collectively, we believe there is a great opportunity for a broad set of innovations in compute, GPU networking software, and services to support core and edge AI infrastructure. According to the 650 Group, the AI switching market is forecasted to exceed $10 billion in 2027. Our scalable fabric for AI, coupled with a proven power-saving capability of Cisco Silicon One, puts us in a strong position to build out the infrastructure needed for AI clusters, and we are laser-focused on winning in this space. Moving to Security, we continue to execute against our product roadmap and strengthen our unified security platform. Since our Cisco XDR solution became available this summer, we have added recovery to the response process, giving security teams the ability to snapshot and restore their business-critical data at the first sign of a ransomware attack. With our three new offers around XDR, Cisco Secure Access, and Multicloud Defense, we already have over $500 million in the pipeline across over 1,000 customers. We also launched our new Cisco security firewall solution this quarter. We are actively engaged in competitive sales with all these products and expect to see meaningful positive results in the coming quarters. In our Collaboration portfolio, we recently introduced a range of truly game-changing AI capabilities, spanning the entire Webex suite as well as new devices for reimagined workspaces at our WebexOne event. Before I turn it over to Scott, let me briefly summarize three key takeaways. First, as we consider where we're at today, the primary issue with demand is that customers are taking time to onboard and deploy heightened product deliveries. While we were not immune to the macro, we believe this is temporary as our customers and partners continue to tell us that our portfolio is stronger than ever and we have continued to see share gains in key markets. Second, we remain confident in our future, with the incremental multi-billion dollar AI infrastructure opportunity, the increasing criticality of security and observability, and what we believe Cisco and Splunk can do together for our customers is truly exciting. Lastly, you can always count on us to take a disciplined approach, regardless of the environment. We remain committed to operating leverage, capital allocation, and expense management. I'll now turn it over to Scott to provide more detail on the quarter and our outlook.

Thanks, Chuck. We delivered solid results in Q1, driven by the prior strategic actions we took to mitigate the supply chain constraints. For the quarter, we reported strong revenue growth and a record non-GAAP operating margin. Total revenue was $14.7 billion, up 8% year-over-year, at the high end of our guidance range. Non-GAAP net income was $4.5 billion, up 28%. Non-GAAP EPS was $1.11, up 29%, exceeding the high end of our guidance range. Looking at our Q1 revenue in more detail, total product revenue was $11.1 billion, up 9%; and service revenue was $3.5 billion, up 4%. Networking, our largest product category, drove the increase with 10% growth. Within networking, the growth was driven by switching, where campus and datacenter were both up double-digits on the strength of our Catalyst 9000 and Nexus 9000 offerings. This was partially offset by a decline in wireless. Security was up 4%, driven by our Zero Trust and threat intelligence, detection, and response offerings. Collaboration was up 3% driven by growth in Calling and Contact Center, partially offset by a decline in Meetings. Observability was up 21%, driven by growth across the portfolio, including double-digit growth in ThousandEyes and AppDynamics. We continue to make progress in our transformation to more recurring revenue-based offerings. We saw solid performance in our ARR of $24.5 billion, which increased 5% with product ARR growth of 10%. Total software revenue was $4.4 billion, a 13% increase with software subscription revenue also up 13%. 85% of our software revenue was subscription-based. Total subscription revenue increased 10% to $6.5 billion, which represents 44% of Cisco's total revenue, an increase of 1 percentage point over last year. RPO was $34.8 billion, up 12% year-over-year. Product RPO increased 14% and service RPO increased 11%. In total, short-term RPO was up 8% to $17.6 billion. Looking at our product orders by geographic segment, year-over-year, overall product orders declined 20% with the Americas down 19%, EMEA down 13%, and APJC down 38%. In our customer markets, Service Provider & Cloud was down 38%, Enterprise was down 26%, and Public Sector was up slightly at 2%. Total non-GAAP gross margin came in at 67.1%, up 410 basis points year-over-year and 110 basis points above the high end of our guidance range. Product gross margin was 66.5%, up 550 basis points. The increase was driven primarily by productivity improvements, with lower freight, logistics, and component costs. Favorable mix and positive pricing also contributed to the year-over-year improvement. Services non-GAAP gross margin was 69%, up slightly. Non-GAAP operating margin came in at 36.6%, up 480 basis points and exceeding the high end of our guidance range. This improved leverage was driven by both our strong non-GAAP gross margin and ongoing disciplined cost management. Shifting to the balance sheet, we ended Q1 with total cash, cash equivalents, and investments of $23.5 billion. We had operating cash flow for the quarter of $2.4 billion, down 40% primarily due to the $2.8 billion tax payment related to prior quarters, which was associated with the IRS tax relief due to the California floods. This quarter we returned $2.8 billion to shareholders, comprised of $1.6 billion for our quarterly cash dividend and $1.3 billion of share repurchases. Consistent with our capital allocation strategy, we are committed to increasing shareholder returns through greater operating leverage, maintaining a higher level of annual share repurchases, and growing our dividend. We continue to invest organically and inorganically in our innovation pipeline. During Q1, we announced our intent to acquire Splunk, which we expect to close by the end of the third quarter of calendar year 2024, subject to regulatory approvals and customary closing conditions, including approval by Splunk shareholders. In Q1, we also closed several acquisitions, all of which are highly complementary to our internal R&D in line with our strategy to strengthen our position in cloud, security, observability, and AI with targeted strategic M&A. To summarize, we delivered a solid quarter highlighted by top-line growth and increased operating leverage that resulted in stronger than anticipated earnings per share. We continue to make progress in our business model shift to more recurring revenue. We remain focused on disciplined expense management without losing sight of the strategic investments necessary to innovate and capitalize on growth opportunities. Turning to our financial guidance, as Chuck outlined, the bottleneck that we previously saw in the supply chain has now shifted downstream to implementation by our customers and partners. Most of the supply chain constraints are now behind us, and both shipment lead times and backlog have largely returned to normal levels. Q1 product orders declined 20% as our largest customers are implementing elevated levels of product shipments from prior quarters as we delivered orders from our historically high backlog levels. As Chuck mentioned, we believe there are one to two quarters' worth of shipped orders awaiting implementation by our customers. Our revenue guidance assumes one to two quarters of lower revenue and then a return to more typical sequential growth rates. Consequently, for Q2, we expect revenue to be in the range of $12.6 billion to $12.8 billion. We anticipate the non-GAAP gross margin to be in the range of 65% to 66%. Non-GAAP operating margin is expected to be in the range of 31.5% to 32.5%. And non-GAAP earnings per share is expected to range from $0.82 to $0.84. For fiscal year 2024, our guidance is updated as follows. We expect revenue to be in the range of $53.8 billion to $55 billion. Non-GAAP earnings per share is expected to be in the range of $3.87 to $3.93. In both our Q2 and full-year guidance, we are assuming a non-GAAP effective tax rate of 19%. I'd like to thank our teams for their focus and execution this quarter. We remain confident in the strength of the business and our ability to capitalize on the key growth opportunities ahead. I'll now turn it back to Sami, so we can move into the Q&A.

Thanks, Scott. Michelle, let's go ahead and queue up for questions.

Thank you. Tal Liani with Bank of America. You may go ahead, sir.

Tal, you there?

Yes. Sorry. I was on mute. Now you can hear me. What is your assumption on the growth seasonality after the next quarter? Are we back in your assumptions to normal seasonality? Or do you expect kind of different seasonality than in previous years?

Yes, Tal, that's a great question. As I mentioned earlier, we discussed one to two quarters of essentially inventory, but we have shipped product that is at our customers but has not yet been installed. I expect the greatest impact to be in Q2 and Q3. However, when looking at the order growth, we do anticipate a return to order growth in the second half of the year, both sequentially and year-on-year as we move forward.

So in terms of revenue recognition, do you expect Q3 to be weaker than previous seasonality? Or do you expect it to be the same as previous seasonality? Or even sequentially?

No, from a revenue standpoint, we don't guide bookings, Tal, but from a revenue standpoint, I do see a sequential increase, Q2 to Q3.

All right. Thank you, Tal.

Thank you, Tal.

Michelle, next question.

Meta Marshall with Morgan Stanley Investment Research. You may go ahead.

Great. Thanks so much. Maybe just a question on, if you see the investment categories changing, maybe free, the orders that you've seen, and when do you see them come back in a couple of quarters. I guess, I'm just trying to get a sense of how much of the orders we've seen over the last year have been catch-up investments like campus and data center? And then which areas of investment will change as we come back or is this really just inventory digestion and the investment categories will stay the same with customers? Thanks.

Yes, Meta, thanks for the question. I think your latter comment is probably the closest to the truth. We don't anticipate a big difference. Although, I think with the improvements that we've seen in our portfolio and security, we should see security accelerate. Obviously, we'll continue to update you on the AI opportunity that's out there. We think that's going to continue to be a driver over the next couple of years. But in general, I think it will look more normal once we get through this.

Thank you, Meta. Michelle, next question.

Amit Daryanani with Evercore. You may go ahead.

Yes. Thanks for taking my question. I guess, Chuck, one of the things I think folks will struggle to understand is the conviction you have that this is an implementation pause and not a macro demand-centric weakness. So I'd love to just understand whatever you can talk about it and why you're so convinced this is a one to two-quarter implementation rather than enterprise demand is just getting weaker. Anything on that front would be helpful? And then, I just want to clarify the spot. You folks had $1 billion in AI orders that’s two times the number you gave last time, is that correct? Thank you.

Yes, Amit, thank you. If you'll bear with me, I want to share a few data points and some context on why we believe this is an inventory issue affecting our customers. Our customers and sales teams have been quite clear over the past 90 days that this is the problem, especially among our large enterprise clients and service providers. We've previously discussed this with service providers, but it has significantly shifted into the enterprise space. Additionally, during our Partner Summit last week, some of our biggest partners independently brought up this issue at the beginning of our conversations, which surprised me given how consistently it was mentioned. From an analytical standpoint, there are three key points to note. Firstly, in certain areas of our portfolio, we can track the timeframe from when a product is shipped to when it connects to the cloud, such as with Meraki. We have observed a one to two-quarter delay in this process compared to historical timelines. Secondly, we had a strong quarter in U.S. federal orders, and we examined why a major customer like the Department of Defense isn't facing similar issues. They have special contractual clauses that give them preferred treatment during shipment decisions, allowing for a steady flow of products during the supply chain crisis, which is why their order numbers appear normal. Thirdly, we saw a significant increase in our Transactional Advanced Services in Q1, which translates to implementation services, growing almost 20%, with a similar forecast for Q2. This indicates that customers are requesting our assistance to help complete their projects. I received feedback from one major partner who mentioned they hired 200 people in the last 90 days specifically to focus on technology implementation for their clients. Overall, the developments over the past 90 days have been revealing and somewhat surprising to us, but we feel optimistic about our current position. I would like to clarify why I don't see this as a macro issue, even though it may have been easier to categorize it that way. The traditional service provider environment remains challenging, with elongated sales cycles and the need for additional signatures still present, yet we did not see any significant deterioration in the quarter. All of this leads us to believe that the issue is centered on consumption by our customers. Now, regarding the AI question, we previously shared data on orders, and we have secured over $500 million in orders related to infrastructure that supports AI networks and GPUs among cloud providers. The figures I’m presenting today are forward-looking. For fiscal year '25, we anticipate a broad ethernet build-out alongside GPUs and have identified over $1 billion in potential orders that our teams are confident we will either secure or have already been designed in. Additionally, we now have our ethernet fabric integrated beneath GPUs in three of the four major hyperscalers in the U.S., and we are closely collaborating with AMD, Intel, and NVIDIA to create solutions that incorporate ethernet technologies and joint reference architectures. Just yesterday, Jensen from NVIDIA and several of his executives met with us for 90 minutes, discussing how we can create integrated solutions using our technology alongside theirs for the enterprise market. We believe this partnership with NVIDIA, leveraging our technology and go-to-market strength, will yield positive outcomes. There's a lot happening in the AI sector.

All right. Thank you, Amit. Michelle, next question.

Thank you. Simon Leopold with Raymond James. You may go ahead.

Thanks for taking the question. I wanted to see if maybe you'd be willing to unpack the networking segment a little bit in terms of the trends. And really, what I'm trying to get at is, understand sort of what's doing better, what's doing worse, and in that I suspect it's datacenter bounced us pretty good whereas maybe campus is a bit weaker and declining. And that hopefully during this transition to the new segmentation, if you could give us a little bit more color within networking? Thank you.

Hey, Simon, thanks for that. I would say the bigger variance that we're seeing, I mean, right now, obviously, the demand signal is a little bit tough because of the amount of inventory that's out in the field and that we have normalized lead times at this point. We knew that would happen sometime in the first half; that's now happened. Our lead times are back to where they were pre-pandemic. And our backlog has shipped. The supply chain team has done a terrific job getting product out the door. That's what's kind of moved the bottleneck from our level down to our customers' level. But when you start to unpack within networking, we're not seeing at this point a huge difference between, for example, datacenter or campus networking. But what we are seeing is a little more field-based inventory on wireless access points. That's been slightly slower than what we've seen. It just because of the amount of product that's been shipped out than what we've seen in the rest of the networking.

All right. Thank you, Simon.

Yes. Thanks, Simon.

All right. Michelle, next question.

Ben Reitzes with Melius Research. You may go ahead, sir.

Hey, thanks. Good afternoon, everyone. I wanted to ask about your share repurchase cadence. Stock obviously could get hit here. We have been talking about $5 billion in buybacks or so for the year. I know some of that stops that dilution. If you guys are confident in the second-half pickup, is there any potential that you would be more aggressive in the upcoming quarter? And how are you thinking about share repurchase this year, given current dynamics with the Splunk deal coming? Thanks.

Yes, Ben, as we mentioned regarding the Splunk transaction, it will not affect our transactional costs and will generate positive cash flow from the first year onward. Therefore, the Splunk deal won't impact our capital returns, including dividends or share buybacks. We plan to maintain a higher and consistent level of share repurchases and continue to increase our dividend. We will also look for opportunities to be strategic with share buybacks. While I won't make any commitments at this time, it's certainly something we will consider.

All right. Thank you, Ben.

Thank you.

All right. Michelle, next question.

Samik Chatterjee with JPMorgan. You may go ahead.

Hi. Thank you for taking my question. I guess, if I can just clarify one thing first. I think, Chuck, in your prepared remarks, you did say, you saw the more pronounced impact on the orders in the month of October. I think that's what I heard you say. I mean, just curious, are you implying that you did see an improvement in orders in the sort of first couple of weeks of November itself and that's maybe part of your confidence that it's a bit more temporary than a longer pause from the customers? And then you did mention large partners really being the ones that are facing this sort of inventory installation problem. What gives you sort of color that SMB, the smaller customers, sort of not going to face a similar issue or are you also baking that in, in terms of your sort of next couple of quarters of headwinds that you're thinking about on the revenue side? Thank you.

Thank you, Samik. My point about October is that if we revisit the end of Q4, we noted in the previous call that we had significant momentum as we concluded that quarter, which led us to not anticipate this situation. We experienced our typical year-end sales activities, such as reallocating accounts and territories, alongside the usual sales ramp-up in the first six weeks of the fiscal year. We usually expect to see the dynamics of the quarter start to take shape by the middle of the quarter and into October, but that didn't happen this time. It became evident to us in October that this would be the scenario. Regarding the consumption issue, it seems to primarily affect those with the most inventory. When considering our confidence levels beyond the small and medium-sized business (SMB) segment, we analyze order data across sub-segments within the enterprise and service provider categories, and the SMB sector performed well. In fact, our smaller customers showed better order performance this quarter. This suggests that the consumption issue predominantly affected larger customers, while small to mid-sized businesses remained unaffected.

Okay. Thank you. All right. Thank you, Samik. Michelle, next question.

David Vogt with UBS. You may go ahead, sir.

Great. Thanks, guys, for taking my question. Scott, maybe this is for you. I just want to unpack maybe one of the comments that you made. And I know you don't guide to orders. But I think in your prepared remarks, you said backlog is back at normal levels at the end of the quarter. So, we do assume that the guide for Q2 and the rest of the year doesn't include backlog conversion into revenue? And then, if that's the case, to your comment about orders accelerating in the second half, I know you don't guide specifically to orders, but you did make a comment that revenue is going to be up, I think, sequentially in the third quarter year-over-year and in the fourth quarter sequentially and year-over-year. Doesn't that suggest like a pretty steep order acceleration, not just an acceleration, but significant positive order trajectory in the fourth quarter and the third quarter? I know it's easy comps. But just some more color there would be helpful. Thanks.

Yes, David, we did mention that. We are anticipating sequential improvement in the second half of the year in both the third and fourth quarters. While we don't provide specific guidance, we expect increases in both orders and revenue. The backlog has normalized at this stage, which we anticipated for the first half. The supply chain team has done an excellent job ensuring that we have orders in the hands of our customers, and now we need those customers to implement them. We are seeing sequential increases. As you pointed out regarding bookings, the second half has easier comparison points, but the revenue will face more challenging comparisons compared to last year.

Great. Thank you. Michelle, next question.

Matt Niknam with Deutsche Bank. You may go ahead.

Hey, guys, thank you for taking the question. Maybe just to dovetail one follow-up to the prior question, I have just another one on margins. Just on the prior one, is the expectation for a second-half improvement in a one-quarter to two-quarter digestion, does that vary at all across the three different customer sets you outlined? And then just on the margins, 36.6% on op income margins this quarter, I think the guide implies a 400 basis point to 500 basis point dip. Is that due to just the sheer revenue decline sequentially? Or are there other cost items we should consider on either the gross margin or OI margin line? Thanks.

Yes. To your second question, it is just based on how the revenues are flowing through the second half of the year. I think gross margins, we've said will settle in somewhere in this 65% to 66% range. I think at this point, it looks like it will be closer to the higher end of that range for the second part of the year. So that's the way I see the year flowing out. Remind me, Matt, what was the first part of your question?

Just around the expectation for second-half improvement in orders one to two quarters' worth of installation. Is that broad across the three customer sets? Or does it vary across service provider, enterprise, and federal?

Yes, I believe we will continue to face challenges in the service provider sector during the second half of the year. This segment includes both telecom and cable, which present their own market dynamics. I expect this area to remain difficult. On the other end, we are seeing progress with web scale orders. Although there is still some inventory to manage, we anticipate an increase in orders from them in the latter half of the year. Overall, the service provider sector is somewhat mixed, but it will likely have a significant impact.

Thank you.

All right. Thank you, Matt. Michelle, next question.

George Notter with Jefferies. You may go ahead.

Hi. Thanks a lot, guys. Just continuing on, on that last question. If I look around the space, companies have been dealing with excess inventories for really three quarters now. And I guess, I'm just curious why is this now becoming more evident at Cisco versus a few quarters ago? And then also you mentioned that the issue is spreading more to enterprises. We don't typically think about enterprises inventorying infrastructure. So I guess, the question for you is, has something changed there or is this more distribution channel inventory? Any insight would be great. Thanks.

Thanks, George. The reason it's become relevant now is that we significantly reduced our backlog in the past six months, which was billions of dollars more than we typically ship to customers during that time. We know that cloud providers have been purchasing in advance, and we've recognized that they have specific purchasing cycles. For the enterprise side, we're focusing on our top 200 customers, who, if they are refreshing their infrastructure, might order 400 or 500 switches, for instance, or may be rolling out branches. In some cases, the equipment might be with them or with a partner handling the staging, who may be experiencing resource delays. The situation can vary, encompassing either one scenario or a mix of both.

And George, just to put some data to that. And you have this data, but I'll repeat it. Our revenue growth, obviously, the quarter we're announcing now, product revenue growth was 9%. But if you go back to Q4, product revenue growth was 20%. And in Q3, it was 17%. So obviously, we get revenue when we can complete a shipment and get it out the door. It gives you a sense of just how much has been pushed out, and as Chuck said in the last two or three quarters.

All right. Thank you, George. And then Michelle, we have time for one last question.

Michael Ng with Goldman Sachs. You may go ahead.

Hey, good afternoon. Thanks for the question. I just have two. First, on the AI orders, $1 billion. What's the feedback from the hyperscalers on your improving position with these customers relative to a few years ago? Is it selling in a more disaggregated fashion with Silicon One? Is it a desire for silicon diversification? And then the second question just as a follow-up on the order slowdown. Was that more concentrated in the campus with wireless LAN and wired or data center or both, just within enterprise specifically?

Thanks, Michael. Regarding the AI question about cloud players, we've managed to regain our position by being attentive and flexible, allowing disaggregation when needed. We're involved in numerous use cases with major web scale players and added over 10 new use cases last quarter where we had been integrated. This disaggregation, along with our adaptability and understanding of their needs, has been key to our comeback. Currently, the feedback indicates they appreciate our performance, our products, and the significant power savings offered by Silicon One, which greatly reduces power consumption. They also value silicon diversity. As for the AI infrastructure, which is mainly supported by InfiniBand, there’s a shift towards standardized technologies like Ethernet to enable multiple sourcing. Our focus now is on delivering and executing on our commitments. Scott, would you like to address the second question?

Yes, Michael, I mentioned this earlier when the question arose. To generalize the trend across the industry can be challenging because we have cleared our backlog significantly faster than others. The differentiation we observed was less about big data center infrastructure versus campus networking, and more between networking and wireless. We noticed an impact in wireless because we shipped a substantial number of wireless access points. Our customers are currently holding more inventory of those that they are looking to install.

Great. Thank you, Chuck. Thank you, Scott.

Thank you.

All right. Thank you, Michael, and all right. So we'll go ahead and turn it over to you, Chuck, for some closing remarks.

Thank you, Sami, and welcome again. We are proud of our team's performance in Q1. It was a solid quarter overall, with the exception of the demand issue we've discussed. We aim to be transparent and share what we're seeing. We understand the situation and are addressing it, and we believe it to be temporary. However, we remain confident in our long-term opportunities, particularly in AI, and we are encouraged by our improved position in security and observability. Additionally, we are optimistic about the opportunities arising from the Splunk acquisition. As many of you know, the waiting period for the Hart-Scott-Rodino Act review in the U.S. has passed, meaning we have successfully completed the antitrust review process. We are excited about this development. At our Partner Summit last week, the feedback on our portfolio was the most positive it has been in a long time. I want to reaffirm our commitment to providing value to you and our shareholders through operational efficiency, capital allocation, and careful expense management during challenging times like these. Thank you for joining us today, and I'll turn it back over to Sami.

Cisco's next quarterly call, which will reflect our fiscal year 2024 second quarter results, will be on Wednesday, February 14, 2024 and at 1:30 p.m. Pacific Time, 4:30 p.m. Eastern Time. This concludes today's call. If you have any further questions, please feel free to contact the Cisco Investor Relations department, and we thank you very much for joining the call today.

And thank you for participating in today's conference call. If you would like to listen to the call in its entirety, you may call 1 (800) 834-5839. For participants dialing from outside the U.S., please dial (203) 369-3351. This concludes today's call. You may disconnect at this time.