Cisco Systems, Inc. (CSCO) Earnings Call Transcript & Summary

Welcome to Cisco's Fourth Quarter and Fiscal Year 2026 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.

Good afternoon, everyone. This is Sami Badri, Cisco's Head of Investor Relations, and I'm joined by Chuck Robbins, our Chair and CEO; and Mark Patterson, our CFO. Cisco's earnings press release and supplemental information, including GAAP to non-GAAP reconciliations, are available on our Investor Relations website. Today's call is also being live streamed on YouTube, LinkedIn and X. Following this call, we will also make the recorded webcast and slides available on our website. Throughout today's call, we'll be referencing both GAAP and non-GAAP financial results. We will discuss product results in terms of revenue and geographic and customer results in terms of product orders, and all comparisons will be made on a year-over-year basis unless stated otherwise. Please note that our discussion today will include forward-looking statements, including our guidance for the first quarter and fiscal year 2027. These statements are subject to risks and uncertainties detailed in our SEC filings, particularly our most recent 10-K and 10-Q reports, which identify important risk factors that could cause actual results to differ materially from those contained in our 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. Now I'll turn it over to Chuck.

Thanks, Sami, and thank you all for joining us today. We delivered a very strong close to fiscal 2026, making it a record year for Cisco, with revenue exceeding $63 billion and growing 12% year-over-year. In fact, in FY '26, we delivered the highest revenue, operating margin and earnings per employee in 30 years, demonstrating excellent execution from our teams and the increasingly critical role our technology has in the AI era. In FY '27, we expect all these metrics to continue to improve as indicated in our guidance, demonstrating outstanding productivity and earnings power. We believe the accelerating adoption of agentic AI is fueling a networking super cycle. As customers look to manage increasing traffic and costs, they are investing in Cisco's Networking stack, for inferencing across cloud, on-premise and edge environments. At the same time, the rise of agentic AI is expanding the threat landscape, driving demand for our security and observability solutions to help monitor agent behavior and mitigate evolving threats. This presents a unique opportunity for Cisco, and we believe we're only at the beginning of this super cycle. Turning to Q4. We delivered record revenue of $17.3 billion in the quarter, up an impressive 18% year-over-year, with product revenue up 24% year-over-year. Our record top line performance, combined with operating efficiencies resulted in non-GAAP EPS growth of 23% in Q4 and 14% for the full year. This demonstrates strong operating leverage with the bottom line growing faster than the top line for both the quarter and the full year. The profitable growth of our business continues to produce strong cash flows, supporting our commitment to deliver consistent capital returns. In Q4, we returned $3.2 billion in capital to our shareholders through share repurchases and dividends, bringing the total return in fiscal '26 to $12.7 billion in value or 99% of free cash flow. Our results are a testament to the trust we built with our customers and our commitment to deliver the outcomes needed as they navigate this period of accelerating technological change. Now some color on demand. We saw strong momentum and broad-based demand for our technology globally with total product orders up 35% year-over-year in Q4 and hyperscale orders up triple digits. Excluding hyperscale, product orders were up 25%. Enterprise product order growth accelerated to 21% year-over-year in Q4 with double-digit growth in every product category and geography. Public sector order growth also accelerated to 30% year-over-year with continued momentum in EMEA and APJC and accelerated growth in the Americas, driven by U.S. Federal. Product orders from service provider and cloud customers grew 95% year-over-year, with 4 of the top hyperscalers each growing AI infrastructure orders in the triple digits. We also saw increasing strength in telco in Q4 with orders growing over 30% year-over-year. Now turning to product demand. Networking product orders grew 40% in Q4, driven by triple-digit growth in service provider routing and Acacia optics, and double-digit growth in data center switching, compute, campus switching, wireless, enterprise routing and industrial IoT products. Q4 marked the eighth consecutive quarter of double-digit growth for our networking portfolio overall, supporting our view that we are in a multiyear, multibillion-dollar networking super cycle. It is also worth noting that more than half of our customers purchased both campus and data center networking solutions, demonstrating our differentiated platform approach where new technology investments compound the value of existing investments. Moving to AI infrastructure for hyperscalers. We took $4 billion in orders in Q4, bringing the total for FY '26 to $9.3 billion, approximately 4.5x our fiscal year '25 total. The mix of these orders in both Q4 and FY '26 was approximately 60% Silicon One-based systems and 40% optics. Our Acacia business had another very strong quarter with over $1 billion in orders in Q4. And to date, we have shipped over 850,000 400-gig and over 75,000 800-gig coherent pluggable optics. As AI workloads become increasingly distributed across clusters and facilities, we believe demand for this technology will remain strong, and I'm incredibly proud of our market leadership in this space. We won 3 new design wins with hyperscalers in Q4. One of these was for our Silicon One P200-powered system for scale-across, bringing our total to 3 scale-across design wins for the P200 since launch, each with a separate hyperscaler, and we have already received orders for these in Q4. We believe this is only the beginning of the scale-across motion. As AI models grow in complexity and size, hyperscalers need to connect or scale across multiple data centers due to physical and power limitations in a single data center. Power efficiency, reliability and scale are critical in ensuring distributed GPUs function as if they were in the same location. Given these requirements, Cisco is well positioned with our P200-powered systems, market-leading optics, open line systems and coming soon multi-rail optical systems to provide hyperscalers the technology needed for these complex use cases. The additional hyperscale design wins in Q4 were for a scale-out use case with our G200-powered system and one for a managed optical fiber network, which leverages our line system technology and enables the use of our digital coherent optics directly in third-party equipment. The optical win is strategic as it positions Cisco as an alternative supplier to an incumbent competitor and has the potential to disrupt traditional delivery of managed optical fiber networks. Additionally, we have line of sight to multiple AI design wins expected over the next 6 months across our G300, G200 and P200 Silicon One chip designs as well as for Optics. As I've said before, our success with hyperscalers can be attributed to Silicon One, the industry's most scalable and programmable architecture for a wide range of use cases and infrastructure designs. Notably, we plan to roll out Silicon One comprehensively across our high-performance networking systems by fiscal year '29, which gives us greater control over our supply chain and innovation pipeline. Importantly, our control of the silicon systems and software will enable us to develop more performant, secure networking, reinforcing our competitive differentiation and positioning us for market share gains. Overall, our hyperscale business continues to show great momentum with AI infrastructure revenue projected to grow to $7.5 billion in fiscal year '27, supported by demand growth and market share gains. For perspective, in FY '26, approximately 6% of our total revenue was from AI infrastructure for hyperscalers, up from less than 2% in FY '25. In addition to the hyperscaler demand, we took over $400 million in AI infrastructure orders from neocloud, sovereign and enterprise customers in Q4, bringing the total for the year to over $1 billion. We had a new design win in Q4 with a major neocloud provider for our G200-powered system for a scale-out use case. In enterprise, Nexus switch orders tagged for AI deployments were up more than 85% sequentially. As these customers look to scale AI economically, there is increasing focus on managing token consumption, selecting the right model in the right location for each workload. We believe on-premise AI infrastructure will become an important option for enterprise customers as they look to optimize both the business value and cost of AI. Enterprises need GPU clusters on-premise and at the edge with low latency, high-bandwidth networking and built-in security, observability and automation, all of which Cisco can provide in a co-designed, vertically integrated stack. Regardless of how or where customers choose to deploy AI, whether in the public cloud through neo or sovereign clouds, on-premise or at the edge, we believe Cisco will benefit because of the unmatched depth and breadth of our portfolio and our expertise in each scenario. As we look at overall enterprise demand, we see customers investing in infrastructure across their environments. In Q4, overall data center networking orders grew more than 35% year-over-year. Notably, a leading U.S. global bank placed an order for 1,000 Cisco data center smart switches, replacing a major networking competitor and a major firewall competitor, transitioning to a secure networking architecture, which only Cisco can provide. Customers are also focused on modernizing their workplaces, and we continue to see strong demand for campus networking solutions with 20% year-over-year growth in product orders in Q4. Our next-generation switching, routing and wireless products continue to ramp faster than prior product launches with Wi-Fi 7 orders representing more than 50% of total wireless orders in Q4. We see the momentum in campus networking being driven by infrastructure modernization to both scale AI initiatives and to strengthen defenses against a rapidly evolving cyber landscape. A leading frontier AI company has chosen Cisco's campus networking solution, including Wi-Fi 7 access points, smart switches and end-to-end segmentation to enable innovation at speed and provide the security for that innovation as they rapidly scale to new locations. Orders for our industrial IoT portfolio have also now grown in double digits for 9 consecutive quarters and continued to accelerate in Q4, driven by deployments in manufacturing and utilities as well as in data center facilities where ruggedized networking equipment is needed to withstand extreme operating conditions. Now shifting to security. Our entire security portfolio, including Splunk, saw double-digit order growth in Q4. In our core security portfolio, over 1,500 customers purchased our new products, including Secure Access, XDR, Hypershield and AI Defense in Q4. This brings the total number of net new customers to over 6,400 since launch. Orders for firewalls grew over 30% in Q4. When it comes to securing AI, customers increasingly want a unified approach across users, applications and agents, and we are seeing greater adoption of our AI security capabilities of AI Defense and guardrails in Secure Access. As quantum computing creates risk both today and in the future, customers will need to assess the exposure of their infrastructure to these risks. We believe Cisco is uniquely positioned to help customers assess potential exposure and implement quantum-safe protection across devices, networks and data using post-quantum cryptography, or PQC. Some of our newest systems, including Cisco Secure routers, smart switches, wireless controllers and secure firewall platforms are PQC-compliant, making them very compelling, especially for the most highly regulated industries. Turning to Splunk. We see good momentum as solutions are integrated into our security offerings and contributing to several whole portfolio agreements in Q4. We also added more than 280 new logos to Splunk's customer base and secured the highest number of competitive wins in any quarter in fiscal year '26. As a result, we exceeded our target of 1,000 new logos for the year. In our collaboration business, we saw the best quarterly performance in 7 years with double-digit order growth in Q4 and video devices growing 40% year-over-year. Now I'd like to comment on our innovation pipeline. At Cisco Live U.S. in June, we introduced Cisco Cloud Control, a single management plane and unified data layer for all Cisco products built for humans and agents. Cisco Cloud Control incorporates key innovations such as AI Canvas and Cisco IQ. Since launch, nearly 4,500 enterprises have signed up for Cisco Cloud Control and are highlighting the value they're getting from AI Canvas and other insights. For example, a network engineer at a major U.S. enterprise software company spent more than 8 hours trying to troubleshoot dropped video calls before prompting AI Canvas, which pinpointed within minutes the specific access point, identified the root cause and laid out next steps. Customers are now prompting AI Canvas daily to surface previously unavailable insights and help deliver huge productivity gains. We continue to innovate in security and recently launched Antares, a family of open-weight small language models designed to help cybersecurity professionals pinpoint known vulnerabilities within a code base. Antares is part of a broader Cisco effort to define practical and trustworthy AI tools for cybersecurity professionals and help develop standards to support AI security adoption. Last month, we also introduced Resilient Infrastructure Services, powered by Cisco IQ, which now has over 8,600 customers. Resilient infrastructure services help customers identify vulnerabilities, prioritize actions and implement continuous protection autonomously and at machine speed. We also continue to accelerate AI advancements across our entire business, both internally for our teams and to better serve our customers. We are using generative AI and agentic systems across our customer experience organization, which is dramatically expediting quote turnaround and case resolution times as well as driving higher renewal rates. In FY '26, 145,000 support cases were resolved entirely by AI with zero human intervention. Circuit, our on-prem proprietary AI assistant is fully embedded in how Cisco operates, supporting over 75 million prompts in Q4. Circuit runs on our Secure AI factory infrastructure, which improves GPU utilization and automatically routes each task to the appropriate large language model, allowing us to manage token consumption. To summarize, I'm incredibly proud of our teams and how they show up every day to ensure our customers get the very best from Cisco. We believe we are in the early stages of a networking super cycle, presenting a massive opportunity for our business, and we are committed to helping our customers modernize and secure their infrastructure to unlock the full potential and value of their AI investments. Now I'll turn it over to Mark for more detail on the quarter and our outlook.

Thanks, Chuck. We delivered a very strong quarter, exceeding the high end of our guidance across revenue, operating margin and EPS with solid operating cash flow. For the quarter, total revenue was a record $17.3 billion, up 18% year-over-year. Non-GAAP net income was $4.9 billion and non-GAAP earnings per share was $1.22, each a record and up 23%, demonstrating excellent operating leverage with net income and EPS growth outpacing revenue growth. Total product revenue was $13.5 billion, up 24% and services revenue was $3.8 billion, flat year-over-year. Product revenue growth was led by networking with growth accelerating to 28% year-over-year, driven by triple-digit growth in AI infrastructure, double-digit growth in data center switching and continued growth in campus networking. Security delivered a strong quarter, up 14%, reflecting strength in Splunk, network security and SASE. Collaboration was up 12% with solid growth in Webex Devices and Contact Center. Turning to our recurring metrics. Total RPO was $46.7 billion, up 7%, with product RPO up 9%. Total ARR ended the quarter at $32.1 billion, an increase of 3%, with product ARR growth of 5%. Total subscription revenue represented 48% of Cisco's total revenue. Total software revenue was $6.2 billion, up 11%. Q4 product orders were up 35% year-over-year, with broad-based strength across geographies, technologies and customer markets. All geographies saw double-digit growth with the Americas up 44%, EMEA up 25%, and APJC up 19%. In terms of customer markets, the growth was led by service provider and cloud with 95% growth. We also saw strength in public sector and enterprise, which were up 30% and 21%, respectively. Total non-GAAP gross margin came in at 66.3%, down 210 basis points year-over-year, but up 30 basis points quarter-over-quarter. Non-GAAP product gross margin was 64.8%, down 270 basis points, primarily driven by higher hardware mix and memory costs, partially offset by productivity improvements and price increases. Non-GAAP services gross margin was 71.6%, up 80 basis points. We continue our focus on providing consistent profitability through financial discipline with non-GAAP operating margin at 35.9%, reflecting strong execution and operational efficiency. Our non-GAAP tax rate was 18.8% for the quarter. Shifting to the balance sheet. We ended Q4 with total cash, cash equivalents and investments of $15.9 billion. Operating cash flow was $5.4 billion, up 27%, driven by strong revenue growth and operating leverage. From a capital allocation perspective, we returned $3.2 billion to our shareholders during the quarter, comprised of $1.7 billion for our quarterly cash dividend and $1.5 billion of share repurchases. There is $8.1 billion remaining under our share repurchase program. Turning to the full fiscal year. Revenue was a record $63.3 billion, up 12%. We achieved this while also increasing our non-GAAP operating margin by 40 basis points to 34.8%, demonstrating continuing operating leverage. On the bottom line, non-GAAP net income was $17.2 billion, up 13% and non-GAAP earnings per share was $4.33, up 14%, both a record and growing faster than our double-digit top line revenue growth rate. We returned $12.7 billion in capital to our shareholders through cash dividends and share repurchases. This was comprised of $6.6 billion in quarterly cash dividends and $6.1 billion of share repurchases. We increased our dividend for the 15th consecutive year in FY '26, reinforcing our confidence in the strength and stability of our ongoing cash flows. In summary, we achieved record-breaking performance for both the quarter and the fiscal year with top and bottom line results that exceeded our expectations. This success is a direct result of our accelerated pace of innovation across our portfolio, our strong order momentum and disciplined expense management. We remain focused on making strategic investments in organic innovation to capitalize on the significant growth opportunities we see ahead as well as complementary M&A opportunities. In Q4, we closed the acquisitions of Galileo Technologies, Inc. and Astrix Securities Ltd. to further expand our observability and security offerings. All these investments continue to be underpinned by our commitment to disciplined spend management. It is this powerful combination that continues to fuel strong cash flow and our ability to return significant value to our shareholders. Looking ahead, you can expect us to continue our focus on driving durable growth with financial discipline, driving operating leverage and continued capital returns. Turning to guidance. For fiscal Q1, our guidance is as follows. We expect revenue to be in the range of $18 billion to $18.2 billion. We anticipate 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 35.5% to 36.5%. Non-GAAP earnings per share is expected to range from $1.32 to $1.34. We are assuming a non-GAAP effective tax rate of approximately 18.5%. Our guidance for fiscal year '27 is as follows. We expect revenue to be in the range of $72.2 billion to $73.4 billion. Non-GAAP earnings per share is expected to range from $5.05 to $5.11. Sami, let's now move into the Q&A.

Thank you, Mark. [Operator Instructions] Operator, can we move to the first analyst in the queue?

Our first caller is Amit Daryanani with Evercore ISI.

Congrats on some really impressive numbers here. I guess maybe my question to start with would be, Chuck, your fiscal '27 guide at the midpoint is implying 15% revenue growth. Even if I take the AI revenues out of the equation, it's implying double-digit 10% growth ex-AI versus your long-term model that's at 4% to 6%. Can you just touch on what's driving the ex-AI growth? And how do you think about the durability of this growth given your comments around the start of a networking super cycle? That would be really helpful to understand because I think everyone will worry that is this the peak of the cycle? And then as my follow-up, you're guiding for the $7.5 billion AI revenues in fiscal '27. I'm hoping you can double-click on how are you thinking about the scale-across opportunity across Silicon One and Optics, especially as you get ready to launch your own multi-rail hyper-rail solution next year?

Thanks, Amit. Let me just write this down real quick. So first of all, I'm incredibly proud of the team and what we've accomplished. It's been several years in the making, and we'll talk about that throughout the Q&A today. But I think this super cycle is really -- it's enabled because we uniquely have our systems, our silicon, our optics, security, observability and really being able to integrate that into a stack for our customers. If you look at the overarching opportunity that we see, if you just go across what's happening today, I think it's clear what's happening in the hyperscalers with AI. We did in excess of -- we did $9.3 billion in orders last quarter. We're now giving you a revenue number of $7.5 billion. We -- that's revenue and not orders, just to be clear, in FY '27. So we've got the hyperscalers moving forward. We've got the telcos that are building out. We had orders in Q4 in excess of 30%, and they're building out their infrastructure to actually be ready for technologies like the scale across opportunity that you discussed, which we think the network traffic related to AI-based scale across versus traditional data center interconnect is roughly 14x what it might have been before. So the telcos are building to get ready for that. You have the enterprises that we've talked about for over a year now where they're modernizing their networks to be ready for AI. Now we have this impending Mythos effect that they're all looking forward to. Downstream, we have quantum that they need to prepare for. And that -- those are all drivers of what we've been talking about relative to just an overarching campus refresh, where for the first time ever, we've had -- we have our campus networking, our both switching, routing as well as wireless and everything, all of those are going through a refresh at the same time. And that's all is actually accelerated by -- when we think about Mythos, we think about customers doing analysis right now on their LDOS or their last day of support footprint, products that can't be patched. I mean, all of these things, we believe, are going to actually drive this super cycle for a while to come. So we feel very good about that. On your second question relative to scale across, I think if you look at it, I mentioned a few minutes ago that we think the traffic that's generated from AI-based scale across, which is effectively what used to be data center interconnect is 14x what it was historically. And we're uniquely positioned because in that space, we've got our P200, which we talked about having 3 wins already in that space across 3 different hyperscalers. By the way, we started taking orders from all 3 of them in Q4. So that's positive. We also have our optics, which has -- Acacia had another $1 billion quarter, as we discussed. And we actually announced our first design win in multi -- in optical networking. And we have the multi-rail systems that we're actually beginning to deploy in these platforms as well. So we think that if you look at the opportunity for scale across, it's massive, and we believe that we're very well positioned to take advantage of that as we go forward.

Ben Reitzes with Melius Research.

Nice results, Chuck and Mark. I wanted to ask about gross margins. What is your approach here in the first quarter and for the year for them to contract a little bit? Like, just what are you seeing? Are you being conservative? And how did you just come up with 65% to 66% given some of the constraints? And what's the color there? And then I wanted to also ask just kind of another approach here to the revenue guidance for the year. What is your -- your networking orders are 20% and plus 50%, plus 40% the last couple of quarters. Obviously, that would mean revenue in networking is going to grow slower than what we've seen in orders in your guidance. Is this a conservative approach that you have? Why wouldn't networking revenue kind of meet the order patterns in the middle as we go throughout the year?

Thank you, Ben. Mark, do you want to take the first...

Happy to -- both, actually. Yes. So Ben, maybe just to kind of step back and give a little bit of color and unpack the key assumptions that underpin the guide, and I'll hit on the gross margin piece and the second part of your question as well. So I think as you look at the full year, we ended FY '26 with double-digit top line and bottom line growth, 12% and 14%. We see acceleration in both of those. So accelerating to 15% on the top line, 17% on the bottom line, again, driving that operating leverage with bottom line growth faster than the top line. With the $7.5 billion in hyperscale revenue, if you kind of back that out, you get to the core business growing at about 10%, which is obviously significantly faster than Investor Day that we've done awfully long ago at this point. And then underneath revenue, maybe a couple of other data points, and then I'll get to the gross margins. If you look at security and observability, I would think about those going from kind of low single-digit growth in full year FY '26 to high single-digit growth in full year FY '27, and we can talk more about the shape of that maybe later in the call. But services, I also think you're going to see improvement there as well and turning positive in FY '27 and for the full year, seeing gradual improvement as we move through the year and then for the full year kind of being in that low single-digit growth range. When you think about operating margins and gross margins, first off, as Chuck said, we are in this networking super cycle, which we're very early in the cycle, and we're shipping high volumes of hardware, which is increasing the revenue mix to hardware considerably. So you should expect a slight gross margin headwind as we move through FY '27 as we address these very high-growth opportunities. And operating margin is really a better indicator of our profitability as our guide implies operating margin of about 35% for the full year FY '27, which would be a high watermark for us as a company. And in terms of -- I think the second part of your question was could networking grow even faster? And is there some conservatism in there? Certainly, been really happy with the networking growth and a lot of the underlying demand trends that Chuck outlined. I think though, as you get into sort of Q2 through Q4, the implied growth is more like 13%. And it's really the comps. As you look at last year, the first half being in top line growth of kind of single-digit growth. And as you got into the second half being sort of mid- to high teens growth, the comps are going to get much tougher there. Also the linearity, if you just look at Q1 revenue guide versus the full year is at about 25% of the year and our 3-year average is for Q1 to be about 25%.

Yes, Mark, I want to make one comment on the operating margins. When you think about the 35%, I think the thing to really understand is that it indicates the profitable scale of these strategic opportunities that we're pursuing, particularly with the hyperscalers. If you think about the triple-digit growth that we talked about in the hyperscalers, our expenses to actually capture that growth are minimal in addition to what we spend today. So if you think about our traditional business, you could largely say our growth rate and our expenses, they're not 1:1, but they're much closer. This business, because of the magnitude of it and the growth rates, it allows us to take, even in some cases, a lower-margin business from a gross margin perspective that actually turns out to be highly profitable because we don't have to add incremental expenses to go gather that business. So these are strategic decisions we're making about business to pursue, and we feel really good about the profitability impact of those businesses.

Yes. Maybe just a quick data point on that, Chuck. So I think Q4 is a great example of that. Gross margins on a year-over-year basis were down 2.1% but OpEx was also down 3.7% as a percentage of revenue, which then allowed us to move from operating margins dropping as a percentage of revenue from 34.3% to 35.9%. So really showing incredible scale and productivity.

Meta Marshall with Morgan Stanley.

Nice to see the pickup in the security business, 14% year-over-year, pretty meaningful improvement in growth. Just wanted to get a sense there. Is that anniversarying some of the headwinds from a business model perspective on Splunk? Is that a lot of technical debt being replaced? And then maybe a second question for you, Chuck. You spoke to enterprises are changing kind of how they're thinking about on-premise to cloud. Given the amount of conversations you're having, is this cost argument that they're making? Is the security data sovereignty? Just how are you seeing that conversation with customers evolve?

Yes. I'll take the first part, Meta. So on security, obviously, really pleased with the 14% revenue growth that we saw in Q4. What I think we've done is we've really turned the corner on security, I think, and Splunk both, meaning that the trend line will be good. Now we'll exit FY '26 with full year growth in overall security in low single digits. It will be high single digits is what we expect for FY '27. But that 14% did have, and you kind of alluded to this could be the fact, did have a little bit of an anomaly in there. We saw Splunk during the quarter, and it always just depends on customer preference. And during the quarter, we had some sizable on-prem deals that also had a little bit longer duration. So that significantly helped the overall security number in terms of revenue. We see that longer term really being likely going back to more of a 2/3 in the cloud, 1/3 on-prem. So I think overall, though, security is probably mid- to high single digits in Q1 and improving as we go through the year.

Yes, Meta, I think one other comment I'd make on security, and then I'll answer your enterprise question. I think we talked a lot about our belief that the organic Cisco solutions would begin to improve as we got through last year and then into this year. And what I would say is I think our comment was that they'd be approaching double-digit growth as we exited the year, and they were high single digits, so they did exactly that. We had 1,600 new customers for the new products, bringing our year to over 6,400 new customers on the new technologies that our teams have built, and we saw a second quarter in a row of 30% growth in firewalls and Cisco firewalls. So we think that will just continue to get better next year, as we said on our last call. On the question relative to the enterprise and this whole discussion of on-prem cloud, is it a cost issue, security issue, a sovereignty issue? The answer is yes. I think what you're seeing right now, it all started with this whole discussion around tokenomics, and then it's expanded quickly into open models, open-weight models, foundational or frontier models and what's -- how are enterprises going to navigate the future. There's agentic security is coming into it. There's security of my data, there's sovereignty of my data that comes into it. So what we believe is going to happen is you're going to have customers that are going to make intelligent decisions about which models they use based on use cases and which ones are most appropriate for whatever agentic applications they're running. So for us, in particular, if they continue to use cloud-based models, that's good for us, just like it has been for the last 2 years. If they move to open-weight models or models that they're running on-prem, that's great for us because it means they will invest in more enterprise private data center networking, which we've seen in the last 2 quarters. Q3, it was in excess of 40%, I believe. And in Q4, it was in excess of 35%. So we've seen continued growth and investment in that space. So that's good for us. And as you see them deploy agents and this whole focus on agentic security and the network implications of running thousands and thousands of agents in your infrastructure and the performance and the latency issues, the edge deployments that are going to occur, we think that regardless of the architecture that enterprise customers choose to take and how they deploy, whether it's on-prem or cloud, we think it's going to be a positive for us.

Aaron Rakers with Wells Fargo.

Congrats on the results. I wanted to try and unpack a little bit more, I guess, the implied guide in this current quarter would suggest over 20% year-over-year growth. It looks like it would imply maybe a deceleration into the subsequent quarters to hit the midpoint of your guidance. So I was wondering if you could help us bridge the $7.5 billion of revenue that you expect from AI, the linearity of what you're assuming through the course of fiscal '27? And then as a quick follow-up, just curious on the supply side, I see the inventory continues to grow. I guess, given the dynamics we're seeing in the component availability environment, what has Cisco done in terms of just continually incrementally adding purchase obligations or expanding the supply chain ecosystem to support the demand?

Yes. Aaron, so I think there's a few things in there. I think in terms of just sort of the Q1 versus rest of year and the implied slowdown, I think a couple of things. I think we're being prudent on the remainder of the year. I also think that the 2 data points that I threw out earlier in terms of the comps getting much tougher, that's certainly something as well as the overall linearity for the year being right in line with Q1 being right about 25% of the year. It makes us feel good in total. I think on the $7.5 billion revenue for AI hyperscale, you should sort of expect a good trend line in terms of gradual increases as we move from Q1 through Q4. And then the last piece on the components. I think the big thing is we're really leaning into our financial strength. We feel like we've got a world-class supply chain team, and they've been voted as such actually for a number of years. And we really do not have any significant lead time issues that we're seeing unlike we've heard a number of different peers talk about. We're consistently entering into strategic agreements. You've seen us make investments like we did in Nanya on the memory side. We don't have any middleman between us and TSMC. So when we are securing silicon, we're looking at the whole supply chain, whether it's wafer substrates, assembly and test and really dealing directly with TSMC. We feel we've got adequate supply to meet not only the guide for FY '27, but if demand actually strengthens and goes above that, we feel like we're in really good shape to meet that as well.

David Vogt with UBS.

Chuck and Scott, I thought -- I'm going to beat a dead horse here. I think about where your AI orders were a year ago on an LTM basis, I think you guys had done like $2 billion of AI orders. And if I just assume that half of that got recognized into the revenue mix this year, it feels like you did about $3 billion of rev rec from over $9.3 billion of orders. I know you don't give backlog numbers, but I guess what I'm trying to understand is, I understand you took the numbers from $6 billion to $7.5 billion for AI revenue. But again, that just strikes me as very, very conservative. Is there something about the timing of the order deliveries? Are orders being shipped out north of 12 months? Or is it supply chain related? And I'll give you my second question on campus. Obviously, you've implemented a series of price increases going back a ways now. Can you talk to what was the impact of price increases on the non-AI part of the business within Networking? And what do the conversations sound like from a receptivity perspective from customers where they sit in the, I guess, market today? Are they accepting the price increases? Are they just ordering ahead? Just any qualitative commentary that you could share there would be helpful.