Cisco Systems, Inc.

Q4 2024 Earnings Conference Call

8/14/2024

speaker
Operator
Operator
Welcome to Cisco's Fourth Quarter in 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.
speaker
Sami Badri
Head of Investor Relations
This is Sami Badri, Cisco's Head of Investor Relations, and I am joined by Chuck Robbins, Chair and CEO, and Scott Herron, our CFO. 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. 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'll be discussing today include forward-looking statements, including the guidance we'll be providing for the first quarter and full-year fiscal 2025. They are subject to the risks and certainties that we discuss in detail in our documents filed with the SEC, specifically the most recent report on Forms 10-K and 10-Q, 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. Fiscal 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.
speaker
Chuck Robbins
Chair and CEO
Thanks, Sammy, and thank you all for joining us today. We had a strong close to fiscal 24, delivering $13.6 billion in revenue for the fourth quarter, coming in above the high end of our guidance range, and $53.8 billion in revenue for the year, coupled with growth in annualized recurring revenue, remaining performance obligations, and subscription revenue. We also generated excellent margins boosted by Splunk. Our gross margin of 67.5% was the highest for Cisco in 20 years. We saw steady demand as we closed the year, with total product order growth of 14% and growth of 6%, excluding Splunk, indicating that the period of inventory digestion by our customers is now largely behind us as we expected. We've also been investing to accelerate critical innovation in key areas, with HyperShield and HyperFabric for AI being two outstanding examples. With Splunk now part of Cisco, we believe we have an unmatched capability to unlock the full power of the network with market-leading security and observability solutions to deliver even greater value for our customers. We have hit the ground running since we brought the Splunk and Cisco teams together, integrating powerful new customer solutions, and beginning to realize early synergies. We know that our biggest competitive differentiator is the power of our full portfolio. This is why earlier today, we announced that we will be bringing our networking, security, and collaboration teams together as one organization, with G2 Patel stepping into an expanded role as chief product officer to lead this group effective immediately. As we complete the full integration of Splunk into Cisco, the Splunk product line will also integrate into this new organization at the right time, bringing our entire product portfolio together as one team. With this new organization, our products will come together in a more integrated way than ever before, positioning us to deliver incredibly powerful outcomes for our customers. Looking ahead, we remain laser-focused on growth and consistent execution as we invest to win in AI, cloud, and cybersecurity. To focus on these key priority areas, today we announced a restructuring plan to allow us to both invest in key growth opportunities as well as drive more efficiency in our business. Now let me share some details on our fourth quarter. We delivered solid performance in Q4, with revenue coming above the high end of our guidance range. Strong operating leverage across our business once again drove non-GAAP margins above the high end of our expectations, resulting in earnings per share also coming in above the high end of our guidance range. We continue to focus on growth and our recurring revenue streams, annualized recurring revenue, remaining performance obligations and subscription revenue all showed solid growth and subscriptions made up 56% of our revenue in the quarter. We also continue to deliver on our commitment to consistent capital returns. In Q4, we returned 3.6 billion in value to our shareholders through share repurchases and cash dividends, bringing the total to 12.1 billion in value returned in fiscal 24 or 119% of free cash flow. In terms of customer demand, as I mentioned earlier, we saw steady demand in Q4. This resulted in double-digit product order growth across all geographies and strength in all customer markets, despite persistent macro uncertainty. Public sector demand was particularly strong worldwide, driven by federal spending in the U.S. and strength in APJC. Enterprise demand returned a strength in the quarter with solid performance in the Americas and EMEA and even stronger results in APJC. We signed several $100 million plus transactions in the quarter with global enterprises who are leveraging the breadth of our technology platforms to modernize and automate their network operations and deploy next generation machine learning and AI applications. I'd like to highlight one of the largest deals we signed in the quarter with a leading global logistics company, To advance their efforts in creating the world's most flexible, efficient, and intelligent logistics network, Cisco's technology platforms across switching, routing, security, and observability will enable our customer to automate network operations with cutting-edge innovations like AI-powered robotics and unmatched supply chain visibility. We also signed our first cross-portfolio agreement that includes Splunk with a major automotive company in this quarter. AI is transforming every aspect of our customers' IT environments. They need to modernize their infrastructure, harness the full power of AI and data, and improve their cybersecurity posture, all while building agility and resiliency across their entire digital footprint. Our customers continue to put their trust in Cisco, and we are very well positioned to be their strategic partner for this era. In service provider, while our telco and cable customer demand remain muted overall amid continued industry-wide pressure, we saw strength in EMEA driven by investment in AI operations and autonomous networks by service providers to help them monetize their B2B offerings. We're also encouraged to see signs of stabilization and improved performance in web scale in terms of pipeline and demand with double digit order growth. To provide some incremental color, Let me share some data on demand through the lens of our products. Excluding Splunk, security product orders grew double digits. Collaboration product orders grew double digits. In our networking portfolio, data center switching also saw double digit product order growth. And enterprise routing, campus switching, and wireless orders were also strong, with wireless orders greater than one million, up more than 20% year over year as customers look to enhance their office environments. Across the breadth of our portfolio and global customer base, our product order results demonstrate strengthening demand as our customers focus on their next top priority technology investments. While customers continue to ruthlessly prioritize their investments, our product order results demonstrate that our customers continue to look to Cisco as they focus on their most important technology initiatives. Now turning to look at our product categories in more detail. We saw revenue growth in security and double-digit growth in observability year-over-year, excluding Splunk, as customers looked to enhance their digital resilience with Cisco's technologies. We've had extremely positive feedback from customers with early access to HyperShield, the first truly distributed AI-native cybersecurity solution built into the fabric of the network. HyperShield furthers our vision for the Cisco Security Cloud, which is expected to deliver the industry's most comprehensive, unified platform with end-to-end solutions, making it easier for our customers to protect against evolving threats, and we look forward to making it available this fall. Our new security solutions, XDR and Secure Access, are continuing to gain strong traction. We added over 230 new XDR customers in Q4. Early in the quarter, we announced the integration of Cisco XDR with Splunk Enterprise Security, And at the Black Hat Cybersecurity Conference earlier this month, we announced the availability of Talos Incident Response for Splunk customers, enabling access to the full suite of proactive and emergency services to help prepare for, respond to, and recover from a breach. We also continue to capitalize on the multibillion-dollar AI infrastructure opportunity. We have now crossed $1 billion in AI orders with web-scale customers to date, with three of the top four hyperscalers deploying our Ethernet AI fabric, leveraging Cisco validated designs for AI infrastructure. We expect an additional one billion of AI product orders in fiscal year 25. As I shared at our investor day in June, this momentum is being fueled by multiple use cases in production with the hyperscalers, several of which are in AI. In addition, we have multiple design wins with roughly two-third of these in AI. Over and above the web-scale AI opportunity, we believe we are well-positioned to be the key beneficiary of AI application proliferation in the enterprise. Our HyperFabric AI cluster solution, created with NVIDIA, helps our enterprise customers build infrastructure to run generative AI models and inference applications. The on-premise solution will guide users from design to validated deployment to monitoring and assurance when it becomes available later this fiscal year. We are also enhancing our own productivity by using AI in our services and customer experience organization. We have a robust AI and automation framework that touches at least 50% of our service requests. In addition, we are incorporating AI assistance into our products so that our customer and partners have efficient options to access support. Before I hand it over to Scott, I want to take a moment to thank our teams for all their hard work to close out the year and their relentless focus on our customers. In closing, while we're pleased with our performance in a dynamic environment, we know we have to drive strong execution to be successful in the growing markets we serve. We believe this will result in strong growth and profitability as we enter fiscal 2025. I'll now turn it over to Scott to provide more detail on the quarter and our outlook. Thanks, Chuck.
speaker
Scott Herron
Chief Financial Officer
I'll start with a summary of our financial results for the quarter, then cover the full fiscal year, followed by our guidance. Our Q4 results reflect solid execution with strong margins and strength in orders as customer buying patterns begin to return to normal. For the quarter, total revenue was above the high end of our guidance range at $13.6 billion, down 10% year-over-year, comparing it to our strongest quarter ever in the fourth quarter of fiscal 23. Splunk contributed approximately $960 million in revenue for the quarter in line with our expectations. Non-GAAP net income was $3.5 billion, Non-GAAP earnings per share was above the high end of our guidance range at 87 cents. The interest impact from financing the Splunk acquisition more than offset the positive operating impact of Splunk. The net effect was a negative impact of 4 cents on non-GAAP earnings per share for the quarter. Looking at our Q4 revenue in more detail, total product revenue was $9.9 billion, down 15% as we move through the final quarter of customer inventory issues and services revenue was $3.8 billion, up 6%. Networking, our largest product category, was down 28% when compared to our Q4-23 networking revenues, which benefited from near-record shipments of excess backlog. Security was up 81%, including the benefit from Splunk. Excluding Splunk, security grew 6%, driven by competitive wins and growth in SASE and double-digit growth in network security. Collaboration was flat, driven by growth in our cloud calling and CPaaS offerings, offset by declines in meetings and devices. Observability was up 41%, driven by growth in our observability suite, our Splunk observability offering, and ThousandEyes network services. Excluding Splunk, observability grew 12% for the quarter. Looking at our recurring metrics, ARR ended the quarter at $29.6 billion, which increased 22% due to continued strong performance and contribution from Splunk. These factors also drove our product ARR growth of 43%. Without Splunk, ARR was $25.3 billion, up 4%, and product ARR was up 9%. Total subscription revenue increased 17% to $7.7 billion, which now represents 56% of Cisco's total revenue. Without Splunk, total subscription revenue was up 2%, representing 53% of Cisco's total revenue. Total software revenue was up 15% at $5.3 billion, with software subscription revenue up 25%. 92% of our total software revenue was subscription-based. Without Splunk, software revenue was down 5% due to declines in perpetual license software as we moved to more subscription-based software arrangements. Software subscription revenue was up 2 percent. Total RPO was 41.0 billion, up 18 percent, due to both strong organic performance and the addition of Splunk. Product RPO grew 27 percent. Total short-term RPO was up 17 percent. Without Splunk, RPO was 37.5 billion, up 8 percent, with product RPO also grew at 8 percent. As Chuck said, Q4 product orders were up 14% year-over-year. Excluding Splunk, product orders were up 6% year-over-year, indicating the period of inventory digestion by our customers is now largely behind us. Looking at our product orders across our geographic segments year-over-year, America's was up 15%, EMEA was up 12%, and APJC was up 16%. In our customer markets, public sector was up 20%, enterprise was up 13%, and service provider and cloud was up 5%. Total non-GAAP gross margin came in at 67.9%, up 200 basis points year over year, and exceeding the high end of our guidance range. Product gross margin was 67.0%, up 150 basis points, largely driven by Splunk and favorable product mix, offset by price. Services gross margin was 70.3%, up 280 basis points. Non-GAAP operating margin came in at the high end of our guidance range at 32.5 percent. Shifting to the balance sheet, we ended Q4 with total cash, cash equivalents, and investments of $17.9 billion. Operating cash flow was $3.7 billion. Consistent with our capital allocation strategy, we returned $3.6 billion to shareholders, comprised of $1.6 billion for our quarterly cash dividend and $2.0 billion of share repurchases. we took advantage of market conditions to increase our share repurchases during the quarter. Turning to the full fiscal year, we delivered strong margins and increased our operating leverage. Revenue at $53.8 billion made fiscal 24 Cisco's second strongest year on record as compared to the all-time high revenues of $57 billion in fiscal 23, which benefited from significant shipments of heightened backlogs. Splunk contributed approximately $1.4 billion in revenue after the close of the acquisition in March of this year. Non-GAAP earnings per share was $3.73, exceeding the high end of our guidance range, down 4% year over year. Splunk was $0.04 dilutive to full-year earnings, including the impact of financing costs. In terms of our recurring metrics, total software revenue for the full year was up 9% at $18.4 billion, with the product portion also up 9%. software subscription revenue was up 15%. 89% of total software revenue was subscription-based. Without Splunk, total software revenue was up 1%. Total subscription revenue was $27.4 billion, an increase of 11%. Without Splunk, total subscription revenue was up 6%. As Chuck mentioned, total non-GAAP gross margin was 67.5%, up 300 basis points, and the highest in 20 years. On the bottom line, non-GAAP net income was $15.2 billion. Operating cash flow was $10.9 billion. As a reminder, cash flow was impacted by the timing of large tax payments in fiscal 24 compared to fiscal 23. In the year, we returned $12.1 billion in value to shareholders through cash dividends and share repurchases. It was comprised of $6.4 billion in quarterly cash dividends and $5.8 billion of share repurchases. We increased our dividend for the 13th consecutive year in fiscal 24, reinforcing our confidence in the strength and stability of our ongoing cash flows. To summarize, we executed well in Q4 and the fiscal year. We exited the year with order levels improving as customers largely completed the implementation of record Cisco product shipments. Further, as Chuck mentioned, we are realigning our expenses to better capture the opportunities ahead. As part of our announced restructuring plan, we expect to impact approximately 7% of our global workforce with total estimated pre-tax charges of up to $1 billion. Turning to our financial guidance, for fiscal Q1, our guidance is as follows. We expect revenue to be in the range of $13.65 billion to $13.85 billion. We anticipate the non-GAAP gross margin to be in the range of 67% to 68%. Non-GAAP operating margin is expected to be in the range of 32% to 33%. Non-GAAP earnings per share is expected to range from 86 cents to 88 cents. And in Q1, we're assuming a non-GAAP effective tax rate of approximately 19%. For fiscal year 25, our guidance is as follows. We expect revenue to be in the range of $55 billion to $56.2 billion. Non-GAAP earnings per share is expected to range from $3.52 to $3.58, and we're assuming a non-GAAP effective tax rate of approximately 19%. Sammy, let's now move into the Q&A.
speaker
Sami Badri
Head of Investor Relations
Thank you, Scott. Before we start the Q&A portion of the call, I would like to remind analysts to ask one question and a single follow-up question. Operator, can we move to the first analyst in the queue?
speaker
Operator
Operator
Thank you. Our first caller is Mita Marshall with Morgan Stanley. You may go ahead.
speaker
Mita Marshall
Analyst at Morgan Stanley
Great. Thanks so much. Chuck, I just wanted to maybe start with you in terms of what you're seeing in terms of budget prioritization from customers. Clearly, they're coming out of a digestion period, but just any sense of how they're balancing different enterprise or initiatives, particularly trying to balance AI initiatives. And then maybe second, just for Scott, Is the full risk embedded in the fiscal 25 guidance? Just any clarification. Thanks.
speaker
Chuck Robbins
Chair and CEO
Thanks, Mita. Yeah, I would say if you look across the portfolio, just if I go around the world a little bit on the demand side, from a geographic perspective, it was very balanced. America's in Europe up six, Asia up eight. All these numbers are excluding Splunk that I'm going to talk about real quickly. The segments, you know, enterprise was plus three, cloud and SP was plus two, and then public sector was plus 15. And so we saw pretty balanced strength there. But across the technology portfolio, it was incredibly balanced. So we saw double-digit growth, as we said, in security, double-digit growth in collaboration. And then in the networking space, I think it's important to point out the switching business and the enterprise route. The enterprise switching and the enterprise routing businesses were both up high single digits. And the wireless business was up double digits. And, again, I think Scott had in his remarks that the number of $1 million transactions in wireless alone was up 20% year over year. So we saw super balanced demand across the portfolio. The one thing I would say that we heard for the first time this quarter that we haven't heard before is that customers, enterprise customers, are now actually – upgrading their infrastructure in preparation for AI. And in some cases, they're taking some of the dollars that they've set aside for AI to actually spend it on modernizing their infrastructure in order to get ready for that. And you saw that with some of the examples we gave in these platform sales. The large logistics company that we have that actually bought the cross-portfolio solution, the whole platform, Cisco platforms, and they're looking to enable AI-powered robotics, AI-powered supply chain visibility, et cetera. So we think we're beginning to see customers actually prepare for AI applications, even though in many cases they may not know the full range of what they will be deploying, but they know they need to be ready. So that's kind of what we saw.
speaker
Scott Herron
Chief Financial Officer
And, Meeta, I want to make sure I got your second question right. Did you say is the full risk embedded in fiscal 25 guidance?
speaker
Mita Marshall
Analyst at Morgan Stanley
Just the layoffs that were announced, just whether that is fully embedded, the savings from the 7% cut are embedded in the fiscal 25 guidance.
speaker
Scott Herron
Chief Financial Officer
Yeah, it is. And it's a good place to kind of explain in a little bit more detail what that action is about. It's not about cost saving. So the answer is yes, it's embedded in the guidance. But it's much more about finding efficiencies across the company so that we can pivot more resources, much like we did last year, into the fastest growth areas within the company, which are pivoting more into AI, pivoting more into cloud, and pivoting more into cybersecurity. So think of it more as reallocating versus being in pursuit of cost savings. But, yes, it's all built into the guidelines.
speaker
Chuck Robbins
Chair and CEO
Yeah, Mita, I would just add on that one that we actually are shifting hundreds of millions of dollars into AI, into AI networking for cloud, into AI infrastructure, silicon, and cyber. So it's a meaningful shift. But we feel like the market is moving so quickly we have to do that.
speaker
Sami Badri
Head of Investor Relations
Thank you, Mita. Operator, next question.
speaker
Operator
Operator
Thank you. Tal Liani with BFA Securities. You may go ahead, sir.
speaker
Tal Liani
Analyst at BFA Securities
Hi, guys. The last question a little bit stole my thunder, but I want to ask it anyway. On one hand, there is always a correlation between business cycles and restructuring, and here you see a company that is improving on all fronts with orders growing, and still you're announcing a major 7% restructuring. Is there anything in the environment that makes you more cautious Is there anything that drives the timing of this restructuring ahead of what is expected to be a good year? So I'm wondering what can we learn from your view on the environment given the timing of restructuring? I'll just ask my second question together. It's a quick one. On security, great performance, finally improving. Was there any implication – of what we've seen with CrowdStrike. Have you seen any change in purchasing behavior or any different dynamics among customers because of what happened with CrowdStrike? Thanks.
speaker
Chuck Robbins
Chair and CEO
Thanks, Tal. Let me just make a comment on the restructuring this. Scott, you can talk a little bit about it, and then I'll take the security question back. So on the restructuring, the answer to that is no, there's nothing else out there. We had Tremendous demand across the portfolio. It was very broad-based, and it was very consistent. It really is about ensuring in a rapidly moving market that we serve that we're able to shift resources into the most important areas. So that's really it. Scott, anything to add?
speaker
Scott Herron
Chief Financial Officer
Kyle, this is just a continuation of what you've seen us do. We talked at Investor Day about having already pivoted on the R&D front little more than 50 percent of our r d spend into those three areas into ai cloud and cyber security obviously networking continues to be incredibly important to us and we'll continue to support that that space as well but it's looking for efficiencies as we you know as we look across the company really in in every way so that we can take those resources and allocate them into the fastest growing spaces i think it's you know think of it as more of just the financial discipline that that you've always seen from us. I mean, you just look at the year we just closed. Obviously, it was a challenging year on the top line for revenue, and yet we reported the highest operating margin in the history of the company. So this is just more of the financial discipline that I think you've known us for.
speaker
Chuck Robbins
Chair and CEO
And then on the security question, Tal, if you think back to go back about a year, what I had said I felt like would happen is that We would start seeing improvement in the second half of fiscal 24. We were high single digits in Q3. We were double digits in Q4. And I said we should see the real momentum kick in in 25. And I think that's what we're feeling at the beginning of that. As it relates specifically to CrowdStrike, it's hard for me to say. I will tell you that we added, you know, 230 more XDR customers. We're pushing 600 customers on that platform, which is a pretty significant decision when customers make that decision. So that's encouraging and candidly to secure access to product that is the cloud edge security solution is actually ramping even faster than XDR did. So the teams have done a great job with this innovation. We have 2,200 customers now that are using our AI assistant in security. And so that's very encouraging as well. So we're really optimistic about what the teams have been doing in this space.
speaker
Sami Badri
Head of Investor Relations
Thank you, Tal. Michelle, we'll go to the next question.
speaker
Operator
Operator
Thank you. Sam McChatterjee with JP Morgan. You may go ahead, sir.
speaker
Sam McChatterjee
Analyst at JP Morgan
Hi. Thanks for taking my question. And before I ask the question, congratulations to Jitu on the expanded role as well. Maybe just starting off with the AI orders, Chuck, I think you mentioned you already cumulatively crossed 1 billion and are on track for the 1 billion next year. Maybe if you can give us some sense on what's the current sort of run rate that you're hitting relative to the 1 billion target you have for next year. And as you sort of get more visibility in terms of some of these deployments, how you're thinking about the orders, timing of the orders, translating into revenue, and I have a follow-up. Thank you. You want to follow up now?
speaker
Sami Badri
Head of Investor Relations
Simi, could you ask the follow-up now, please?
speaker
Sam McChatterjee
Analyst at JP Morgan
Okay. On the follow-up, I was just really going to more ask about what's embedded in terms of the guide relative to the Splunk growth versus the core business, and if we are sort of calculating it right, it looks like Splunk's growth was about 5%. And then the quarter looks a bit more subdued than sort of the double date growth. I think everyone was expecting. So any, any guide, any sort of thoughts on why it was a bit more subdued if I'm doing the math, right. And how to think about sort of what's embedded in the guide for fiscal 25. Thank you.
speaker
Chuck Robbins
Chair and CEO
Yeah. So on the AI orders, we did talk about the fact that we crossed a billion dollars to date, uh, in the web scale space, which is, which is solid. And, uh, You know, at Investor Day, we talked about the number of design wins we've had, which are wins where we have received the go-ahead from these customers that they're going to go with us, assuming we execute and deliver on the design as they have expected. And so, you know, we're only two and a half weeks into the year, so it's hard to say right now how those are going to flow throughout the balance of the year. But I will say that One of the absolute largest players in this space actually told us last week that they are releasing orders in one of those design wins. So one of those design wins will start to generate orders in the near future. So I think things are playing out as we expected and candidly, it's just up to us to execute and deliver on what they've asked us to deliver.
speaker
Scott Herron
Chief Financial Officer
Yeah. And, and to me, you know, as we sat in the opening commentary, it's progressing right in line with our expectations. That, you know, the, the, focus of that transaction was much more about driving revenue. Of course, it's a long sales cycle. We've already seen, you know, as Chuck mentioned, double-digit number of deals that have closed with our two sales forces selling together so that the momentum in the field is good. Splunk, the better metric for Splunk, we talked about revenue because that obviously shows up in the P&L. The better metric for them is ARR, and their ARR is continuing to grow in double digits, which is right where it was, you know, the last time they reported as a public company. So So continuing to see good momentum and beginning to see the green shoots of the sales forces really selling together. We've also done a fair number of product integrations, and I think Chuck talked about several of those in his piece of the script. And so what's going to happen over time is it's going to be harder and harder to say what is with these integrated product sets, what is Splunk revenue and what is Cisco revenue. I will tell you we've built in the full impact of where we expect the combined company to be. But I think defining, you know, longer term, how much of that is allocated to historical Splunk and how much of that's allocated to historical Cisco is going to get tougher and tougher. So what I tell you is it's built, it's performing well. We're already seeing good signs of the sales forces selling together and it's built into the guide.
speaker
Chuck Robbins
Chair and CEO
Yeah, I think that's really important, Scott, because, you know, we said that Splunk typically has a six to nine month sales cycle and we closed, you know, I think over 10, of these cross-sale deals that were worked between the Cisco Salesforce and the Splunk Salesforce last quarter, which was promising. And we also, as I said, my comments, we did the first cross-portfolio agreement that would have traditionally been a Cisco offer to one of our largest customers in the U.S., and we actually transacted it with Splunk included in that. So we're beginning to see what we would have expected at this point and maybe even a little ahead of what I would have expected at this point.
speaker
Sami Badri
Head of Investor Relations
Thank you, Sameek. Michelle, we can move to the next question.
speaker
Operator
Operator
Thank you. George Nader with Jefferies. You may go ahead, sir.
speaker
George Nader
Analyst at Jefferies
Hi. Thanks very much, guys. I wanted to ask about, you know, putting the organization together, networking, security, collaboration. Can you talk a bit about what's driving that integration? I assume you're going to talk about the need for products to be integrated, especially as we leverage AI, leverage big data sets. But can you walk through, you know, kind of the precise motivations driving it? Thanks.
speaker
Chuck Robbins
Chair and CEO
Yeah, George, thank you. You nailed it, actually. You could answer for me. I think if you look at what our biggest competitive differentiation is in the marketplace, it's really when we do deep cross-integration across the portfolio and we're delivering on a platform strategy for our customers. And I felt like with the pace at which the AI revolution is moving and what our enterprise customers need from us, and candidly, as security and networking continue to become more tightly integrated intertwined, I just felt like it was important for us to have a single leader. And if you look at what G2 has accomplished in his four years here when he took on the collaboration business originally, I think everybody remembers what the portfolio was like then versus what it's doing now with double-digit growth this quarter. And obviously in the security portfolio, he's done exactly as we had expected. And I think we have a great networking team. And I think his focus on Execution, innovation, and sense of urgency I think is going to be really welcome there. And so we look forward to seeing what the teams accomplish and the innovation that they'll deliver in the future.
speaker
Sami Badri
Head of Investor Relations
Thank you. Thank you. Thank you, George. Michelle, can we move to the next question?
speaker
Operator
Operator
Thank you. Amit Daryani with Evercore ISI. You may go ahead, sir.