Cisco Systems (CSCO) continues to get a stock bump into Thursday's pre-market trading after reporting third quarter results yesterday, beating earnings and revenue estimates and raising its full-year guidance.

Outgoing Cisco CFO Scott Herren and the Incoming Cisco CFO Mark Patterson sit down with the Morning Brief team in the studio to talk more about the earnings print, Cisco's CapEx spending around AI networks, the company's outlook on infrastructure scaling in regions like the Middle East, and the transition for the two CFOs.

Patterson will officially take over as chief financial officer on July 27.

To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.

Video Transcript

00:00 Speaker A

Let's talk about Cisco, the stock up nearly 3% after topping third quarter expectations. Revenue increasing 11% from a year prior. The company also announcing a change of leadership with CFO Scott Herren planning to retire in July, current Chief strategy officer Mark Patterson will take over as the new CFO. Here with us now, Scott Herren, Cisco's outgoing CFO and Mark Patterson, Cisco's incoming CFO. Thank you both for being here. Certainly a lot to talk about, but Scott, I want to start with you on the quarter here. Walk us through the numbers and how you got there.

00:37 Scott Herren

Yeah, thanks. And and it's always good to to see you both again. Thanks for having us in. And it's great to uh great to see Mark sitting across the table here.

00:45 Mark Patterson

Good to be here.

00:47 Scott Herren

Um, it it was a good quarter. It was strong across the board. We had good, positive uh product bookings growth and of course, revenue growth across all three geos, across our customer segments and across our product lines. So we had good balanced worldwide um growth on the top line. Uh bottom line came in well ahead of expectations. We were, we were actually above our guidance range on both revenue and about four pennies above on the bottom line. So the profitability came through as well.

01:19 Speaker A

And Mark, as we think about the torch being passed, you're going to be kind of steering this company through this iteration, this next wave of the AI opportunity, which we know Chuck has talked about being a strong opportunity for the business here. And CapEx continues to come into mind for a lot of investors. That seemed to be what's on all of the grading cards over this report. Um as you think about that going forward here, what does that profile look like for Cisco? How much are you spenders into that opportunity?

02:04 Mark Patterson

So, first off, uh congratulations to Scott. He certainly had a big impact on on Cisco and and been a great partner for me for many years. I've been with Cisco now 25 years. And uh it's a bit of a homecoming for me. I I came in into finance and have spent time in finance, strategy, operations, the sales organization, etc. But I would tell you um in 25 years, I don't know that I've ever been more optimistic about sort of where we're headed. Uh in in terms of what we can control, uh if you look at our key markets, if you look at the progress that we we are demonstrating in AI and the criticality of our technology in that space, um over $600 million worth of orders in Q3 alone. Uh we're pretty excited about that. We're also very excited about what we're doing in cybersecurity and the acquisition that we made there with Splunk is is playing out very, very well. But there's a lot of uncertainty certainly in in the economy and and what what's going on in tariffs, etc. So we'll uh we'll look to um to the near future and see how we resolve those things.

03:44 Speaker A

I I do want to talk a little bit more about your tenure, but first I want to get a question to you, Scott, on the quarter here and something that I keep hearing from analysts is the focus on customer modernization is a key focus for you. I know as well. How would you define that? Because I hear a unique definition from the analysts I talked to. And how is that effort going to modernize your customers?

04:08 Scott Herren

Well, hopefully, despite perhaps different vocabulary, we're all talking about the same trend. And what it is is obviously AI is and in a particular gen AI, right? AI has been around for a long time. Generative AI and if you think about that, what's what's kind of groundbreaking about it is it's a dialogue. It's a back and forth. It's not a send a question, get an answer, right? And and with that capability, as you can imagine, it drives more traffic on the network. So what we see from our customers, in particular our largest customers, is, you know, they've they're 18 to 24 months into their own how are we going to use AI to make our company more productive and to drive efficiencies in the company. And those things are starting to to bear fruit. And they're saying, okay, now as this goes broad across sales, across marketing, across finance, I've got several AI projects in my team. That's going to drive a lot more traffic. And while I while I'm in this mode of having this, my AI project scale up, I need to make sure my network is ready to be able to handle that increased traffic. And so we see a lot of our larger customers coming in and buying what what everybody buys from Cisco. They're buying switches and routers and access points and security from us. When you ask them why are they doing that, they're saying it's in in advance of AI projects going much more broadly across my company.

06:05 Speaker B

With that in mind and just to follow on that real quick. So as we're seeing more scaling around these projects, it's been a focal point, at least while the president is traveling to get some of these deals to build out data centers, to build out more infrastructure, but not necessarily fully here in the US. Looking at some of the international partners building up data centers in the Middle East, for instance, even. Is that something that you see as a a continuation trend? And why is that? Why is that the focal point right now? Looking to some of those international partners to bring on that infrastructure.

07:02 Scott Herren

Yeah, we we absolutely see that. In fact, part of what we announced earlier this week besides a great set of earnings and and some nice business momentum is three uh specific um partnerships that we launched all in the Middle East between Saudi Arabia and the UAE around the build out of infrastructure there. And whether it's talking to the leaders of the UAE or talking to the leaders in Saudi Arabia, they all see the same trend that we've got we've got energy, but the fossil fuel energy trend at some point is going to begin to taper. What's the next thing that's going to drive our economy and going to keep the people in those countries uh gainfully employed? And they're all looking at AI. Uh so I think you could end up seeing obviously the United States is a center for AI. China will continue to be a center for AI. Uh I think the Middle East will be a center for AI as well. And so our partnerships there are really targeted at as that infrastructure gets built, we want to be helping architect what that looks like. And then of course, providing the networking infrastructure that drives it.

08:40 Speaker A

So Scott, I I want to, I'm sorry. Mark, I want to follow up with you on this because as Scott laid out these deals with the Saudis, you are going to be the one at the helm when these financial commitments come to your balance sheet. I was talking to a tech analyst yesterday. He told me to take all of these deals with a grain of salt because companies want to curry favor with this administration. They might be keen to announce investments and then maybe a couple quarters from now you dial it back a little bit. How firm are you on this commitment to this deal with the Saudis? Is it something that benefits you as a financial part of the company or is it a strategy with this administration?

09:25 Mark Patterson

Yeah, that's a great question. So we're very committed to this. Uh the early progress that you've seen us post in this AI infrastructure space has been primarily with US based webscalers certainly. We see this as a huge opportunity and I think that the Saudis are going to spend and they're going to spend quickly in terms of really advancing uh AI within within the region there. And so, you know, I think that the selection of of Cisco, if you think about it, they look at us as being able to really design, integrate, and secure uh AI infrastructure in this space. And so our our portfolio is a very broad portfolio and has a lot to offer in terms of what they're trying to accomplish.

10:24 Speaker B

What are you seeing from deal cycles right now?

10:28 Mark Patterson

You know, I think that uh we actually, while you you'd expect maybe a bit of a pause given what what's going on in the economy, we actually had a very strong, robust quarter. If you look at it across uh customer markets, you look at across geographies, etc. uh it's actually been very, very good, very stable, very balanced around the globe. And so um certainly we're focused on what we can control and things can change, but uh right now we feel pretty good.

11:03 Speaker A

Scott, I got to end with you, only about 30 seconds left, but why the retirement? Why now? You'll remember a lot of CFOs retiring during the pandemic. Is this the start of CFOs retiring during the trade war?

11:17 Scott Herren

I I I wouldn't, I wouldn't think that I'm leading the uh the CFO parade out the door. It's time. It's the right time for me, you know, in my life. It's we've built an incredible amount of business momentum at Cisco. Uh we've accomplished the things that I really wanted to accomplish when I took this role uh almost five years ago. Uh and you know, if if those things weren't all in place, if we didn't have business momentum, I've got an incredibly strong finance team that Mark will get a chance to lead. I can't wait to see him put his own mark on Cisco, but for me, it's it's just the right time to go.

12:05 Mark Patterson

I think he just wants to beat me in golf. Even more than he already does.

12:15 Scott Herren

That's that's fairly unlikely.

12:20 Mark Patterson

I don't stand a chance.  Related Videos

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