AI, cloud, Splunk and security are among the subjects expected to come up.

Artificial intelligence opportunities. An update on Splunk and the security portfolio. And the effects of cloud demand.

These are some of the subjects likely to come up Wednesday during the latest quarterly earnings report from networking giant Cisco Systems.

The San Jose, Calif.-based vendor is set to cover results from its fourth fiscal quarter, ended July 27.

[RELATED: Cisco To Lay Off Around 4,000 Employees: Report]

Cisco Q4 2024 Earnings

Wednesday will mark Cisco’s first quarterly earnings call since reports of layoff of around 4,000 employees.

This would be around the same number of employees Cisco laid off in February. The San Jose, Calif.-based networking giant employed about 85,000 people in July 2023. Following February’s cut of about 4,250 employees, this would leave Cisco with just over 80,000 employees worldwide.

Analysts on the call may seek Cisco Chair and CEO Chuck Robbins’ thoughts on the greater economy, inflation and interest rates. A July report from financial services firm Morgan Stanley noted that the greater economy “remains a factor in the 2H (now causing a ~2% networking spend contraction vs. neutral impact last year) and VARs seeing lower appetite for new large projects in 2H and incrementally more delayed/pushed out projects in 2H.”

Resellers were more positive than Wall Street on growth expectations for Cisco, with VARs saying 0.7 percent growth and Wall Street estimating a 1.8 percent decline, according to Morgan Stanley.

Read on for what to expect from Cisco’s next quarterly earnings report.

Splunk Updates

Analysts will likely look for updates on Cisco’s security business and further integration and growth in the Splunk business. Cisco acquired Splunk in March.

August marked the start of private preview for Splunk’s AI Assistant Security. Cisco leadership might offer early feedback on the GenAI tool.

A July note from KeyBanc also called CrowdStrike adding security information and event management (SIEM) capabilities making the vendor “more competitive against leading SIEM vendors, including Splunk/Cisco and PANW (Palo Alto Networks), that do not have a first-party-managed SIEM solution.”

The month prior, KeyBanc published a note on Splunk’s migration incentive packages, which could add “incremental pressure on Palo Alto to convert the on-prem QRadar customers to XSIAM.”

June announcements from Splunk include new security innovations aimed at bolstering threat detection and security operations across multiple data sources, new data management innovations meant to give richer unified visibility across the enterprise and help achieve more comprehensive data ownership, plus a collection of AI tools across its product portfolio to speed up routine tasks and data insights.

Also in June, Cisco and Splunk revealed a Unified Observability Experience that combines products from both vendors.

Other Cisco Security Growth Areas

KeyBanc’s second calendar quarter survey of value-added resellers showed areas of strength and weakness for Cisco in the eyes of the channel. In the survey, about 20 percent of respondents named Cisco the vendor “most negatively impacted” by a Palo Alto Networks discount strategy, tying with Wiz.

The survey showed that VARs expect less exposure to Cisco than other vendors, with Check Point and Zscaler topping the list with 60 percent of responses, according to KeyBanc.

Cisco was named the security vendor that “outperformed your expectations the most in the quarter” by 13 percent of respondents, tying with Netskope. That marked a meaningful decline from the prior quarter for Cisco, according to KeyBanc. Palo Alto Networks’ 39 percent share of responses ranked the highest, followed by No. 2 CrowdStrike’s 35 percent share.

Cisco ranked No. 3 for “best positioned” secure access service edge (SASE) vendor with a 29 percent share of responses, besting Microsoft, Netskope and Fortinet. Palo Alto Networks ranked No. 1 with 62 percent of responses, overtaking No. 2 vendor Zscaler compared with last quarter.

KeyBanc’s survey tied Cisco at third among security analytics vendors “gaining the most traction with your customers.” Cisco and Microsoft Sentinel received 23 percent of the votes, beating 14 percent received by Arctic Wolf, Fortinet and Exabeam-LogRhythm, the last two having completed their merger in July.

Palo Alto Networks ranked No. 1 with 41 percent followed by CrowdStrike with 36 percent, according to KeyBanc.

Cisco ranked toward the bottom for “top performing endpoint security vendors in the quarter” with 9 percent of responses, a number that has been in decline since the fourth quarter of 2023. Cisco bested the 5 percent reported for Trellix, Trend Micro and Tanium. CrowdStrike ranked No. 1 with 50 percent of responses. SentinelOne ranked No. 2 with 41 percent.

A June report from Bank of America said that Cisco along with Fortinet and Palo Alto Networks should see a boost from growing firewall demand “in the next few quarters.”

“SASE remains a key growth segment, but we flag the looming debate on the nature of deployment/architecture,” according to the firm. “Contrary to Zscaler’s effort to eliminate Firewalls, Cisco, Fortinet, Check Point, and Palo Alto highlighted their platform benefits, spanning from technical benefits of shared resources to economic benefits.”

Zscaler could see near-term benefits from SASE, but “we believe competitors bring tangible value through platformization and see greater risks for Zscaler next year,” according to Bank of America.

Networking, Communications, Inventory

A July report from Morgan Stanley, referencing a survey from the firm, said that Cisco stands to have a good second half of the calendar year thanks to reset expectations around “inventory digestion and elongated sales cycles.”

“CIO results point to a slight Q/Q acceleration in ’24 Communications budget growth expectations to 2.7% (from 2.6% in 1Q24), something we think highlights nearing capacity of asset sweat,” according to the report. The firm also noted that the growth expectation came “after two quarters of declines.”

The VARs surveyed “highlighted this dynamic, with meaningful sequential upticks in capacity led networking upgrades and replacement cycles trending positively,” according to Morgan Stanley.

“We continue to believe (the) market underestimates the amount of premise equipment sweat over the past few years, which should force incremental investments,” according to Morgan Stanley. “Our accompanying VAR survey pointed to nearing capacity of asset sweat, with meaningful sequential upticks in capacity led networking upgrades and replacement cycles trending positively.”

About 89 percent of resellers surveyed by Morgan Stanley said they “still have excess inventory of 6 months or less,” meaning that, despite the reset expectations, “inventory digestion should remain a headwind through year-end with more normalcy into” 2025.

KeyBanc’s second calendar quarter survey of VARs showed Cisco as the “top performing Networking” vendor during the quarter, a distinction it has held for at least the past five quarters. Still, Cisco’s share of responses has been on a downward trend, reaching 63 percent in the latest quarter, down from 67 percent last quarter and 71 percent before that.

Its closest competitor, HPE, received 37 percent of responses, down from 48 percent the prior quarter.

Cisco AI Opportunities

Analysts on Wednesday will no doubt seek details on whether AI demand is helping Cisco’s various businesses and when that demand could turn into meaningful revenue.

Cisco also ranked among the top five vendors cited as a recipient of incremental share of generative AI spending in 2024, according to Morgan Stanley’s July report, but still saw a smaller share of responses compared to top recipients Microsoft and Amazon. Cisco received a net score of 1 percent compared with Microsoft’s 46 percent and Amazon’s 6 percent.

Cisco also ranked No. 5 in a survey on incremental share of GenAI spending in the next three years. Its net score was 2 percent compared with No. 1 Microsoft’s 46 percent.

In June, Cisco revealed a joint product from Nvidia: Cisco Nexus HyperFabric AI clusters for data centers.

A June report from Melius Research said that Cisco still needs to demonstrate its AI opportunity, describing “very little hyperscaler traction with $800mm in AI orders to date.”

“Cisco is a $54B giant so $800mm in orders, growing to $1B+ cumulative orders next year just isn’t enough AI juice yet,” according to Melius. “However, it does seem that to the degree that Nvidia gains traction in the good ol’ enterprise, Cisco is one of the partners of choice, along with Dell.”

The Melius report said that “AI orders in networking that should be over $2B (cumulative) by (2026 or 2027).”

Cloud Growth

AI demand has resulted in growing interest in cloud technologies from a variety of vendors, and analysts may want to know if cloud adoption has affected Cisco’s business.

Morgan Stanley’s July report noted that Cisco is not among the most popular vendors for managing hybrid cloud environments, logging 2 percent in a quarterly survey, tying with Dell and Nutanix and beating Google and Hewlett Packard Enterprise.

That percentage still paled compared to the No. 1 answer of Microsoft with 48 percent of responses.

The survey also showed that Cisco is the No. 5 vendor when it comes to expected loss of incremental share of IT budget as a result of custom shifts to the cloud in 2024. Cisco’s net was -6 percent, better than -10 percent the prior quarter. Ranking worse than Cisco were NetApp, HPE, Oracle and Dell at -14 percent.

In June, Cisco introduced new capabilities across the Cisco Security Cloud, including the Cisco Firewall 1200 Series.

A June report from Bank of America predicted “strong growth over the next several years” for GenAI data center (DC) switching, with a 73.3 percent compound annual growth rate (CAGR) from 2023 to 2027.

The firm called out Cisco, Arista Networks and HPE and Juniper as beneficiaries of the trend. Arista has “41% market share in Hyperscale Cloud Provider DC switching,” according to Bank of America. Cisco and HPE-Juniper’s opportunity lies “in Enterprise and Tier-2 Cloud Provider and in other segments such as silicon, optics and routing.”

Arista also has about 39 percent share in 400 Gigabit (G) Ethernet switches, according to Bank of America. Amazon, Google and other white boxes hold a 37 percent share. Cisco has 3 percent share.

“We believe genAI networking will create a profound impact on the demand for 400G and 800G Ethernet switches, and expect both segments combined to grow from about 21% of the $20.2bn DC switching market in 2023 to over 53% of the market by 2027, growing from about $4.2bn to $13.4bn in potential revenues for the equipment vendors,” according to Bank of America.

In a July report, Melius Research described Arista as “outflanking Cisco and Juniper in the enterprise and at Service Providers,” but having a closer relationship “to Nvidia than Arista in the enterprise – no doubt.”