Chuck Robbins: Yes, I’ll make a couple of comments, and Scott, I don’t know if you want to give any detail. But I would say that our customers are increasingly balanced around how they are thinking about private cloud versus public cloud. And so we’ve seen continued focus on revitalizing the private data center infrastructure. And I’ll let Scott speak to €“ I’m not sure on the infrastructure side or UCS, if you want to share that. But the other thing I would point out, Simon, as I said in my comments earlier about market share, everything that we sell in the infrastructure within web scale flows into our routing market share numbers and our routing business. So it doesn’t actually boost our data center switching the way we report it. So it’s a little bit of an apples-and-oranges issue. I just want to make sure you understood that.
Scott Herren: No, that’s a really good point. And on UCS, if that’s the root of your question, Simon, we are seeing nice growth in UCS as well. And at least based on our calculations, we feel like we’re gaining share there as well.
Simon Leopold: Thanks. And then just maybe a quick follow-up, I was a little bit surprised that the metric of hardware attached software in backlog is $2 billion, same as it was in the prior quarter. I would have guessed it would have come down with the basically improvement of shipping the hard €“ associated hardware. So maybe I don’t understand that value or you could talk a little bit to why that $2 billion didn’t come down with the extra shipments of the related hardware? Thanks.
Scott Herren: It’s a great question, Simon. And we actually did see €“ if you noticed, our overall software revenue grew 10% this quarter, so back to double-digit growth. And some of that growth is on the back of shipping some of the backlog out, both the hardware and the software that’s had in backlog. So we are seeing the benefit of shipping that out. At the same time, as Chuck said earlier, demand remains steady. And so our overall backlog, while it came down only about 6% sequentially, there is still a significant amount of software stock in that backlog, some of it attached to hardware.
Simon Leopold: And software as a total percent of revenue or product revenue, that metric, where is that now?
Scott Herren: Yes. Just for software, it’s in the 30% range. Overall, we’re in the 44% range.
Simon Leopold: Thank you very much.
Marilyn Mora: Alright. Thanks, Simon. Next question?
Operator: Thank you. Sami Badri from Credit Suisse, you may go ahead, sir.
Sami Badri: Hi, thank you. I had one quick one and a follow-up. The first one is on just the data center switching redesign. You guys made several mentions regarding supply and the team kind of working hard to get redesign through. But does that actually mean the data center switching portfolio is now completed with redesign and that part really did drive the better revenue guidance for the year? So that’s my first question. The other one is we’ve seen several companies report elongated lead times for sales cycles and extra signatures and all these other elements. And I appreciate, Chuck, you did hit on the fact that you aren’t seeing any kind of tech spend get cut. But are you seeing some kind of resistance or slowdown as far as sales cycles impacting the speed at which you guys have historically done business. And I take into account also I appreciate your comment regarding linearity. But I just wanted to kind of ask this question to get it through.
Chuck Robbins: Let me take the second one first, and then Scott, you can talk about the data center switching redesign. We absolutely are seeing some elongated sales cycles. What our teams have told me is that, in many cases, there are extra signatures required. We just seem to, in general, be getting them. It just takes a little bit longer. So €“ but look, it’s a complex world right now. But if you look back at historical sort of what we would consider a bit of a crisis or a complex world environment, I’ve experienced demand falling off a cliff, and we obviously haven’t seen that in the current situation. Scott, do you want to talk about the redesign?
Scott Herren: Just to finish up on that pipeline looks strong, close rates still look good. So we’re not seeing a huge difference there. There is, in some cases, a slight elongation. On the redesign, that’s absolutely contributed to the growth that we’re seeing, particularly in secure agile networks, less so from €“ in terms of releasing the next successor product, more being able to design around problematic components that we couldn’t get supply of. And as we work those redesigns to build the product around components, we can get our hands on, that’s what we’re talking about when we talk about the redesign. And so there is no question, that’s driven some of the growth that you saw in the quarter we just announced. We will continue to drive the significant growth that we’ve put out for the second half.
And to be clear, we will continue to see growth into fiscal €˜24. All the trends we have talked about that are driving the uptick that you see in our guidance in the second half of this year, those trends continue into fiscal €˜24, and we continue to expect nice growth there. I just think it’s a little too early to start to quantify that and give you a guide.
Sami Badri: Got it. Thank you.
Marilyn Mora: Next question please.
Operator: Thank you. George Notter from Jefferies, you may go ahead sir.
George Notter: Hi guys. Thanks very much. I guess I wanted to ask about your impressions of backlog and product orders relative to three months ago. And I think I have this correct. About three months ago, you guys were talking about if product orders were down 10% for the year, then your product backlog at fiscal year-end would be 2x to 3x higher than the normal kind of $4 billion or $5 billion range. And Chuck, I think you were quick to say that it didn’t feel like a 10% order decline was in the cards for you. So, it feels now like you are going to burn more backlog than you were thinking previously and orders will be a bit worse than previous, am I perceiving that correctly? And what are your thoughts there? Thanks.
Scott Herren: Yes. George, I will take that, Chuck, and then you can jump in. I don’t think it is burning down backlog. We clearly are €“ the good news is we are able to ship more of the backlog. That’s good news for our customers. They are waiting for these components. They have got projects that they are holding up that they need to get done. It’s good news for our channel in a sense that the channel is sitting on, in some case, partial shipments. They need that last box, so they can go out and implement that and relieve some of the pressure on their own working capital. So, it’s not €“ I am responding to the burning down backlog. This is good news, our ability to ship the backlog, and that’s what you see reflected there in the guide down €“ or sorry, in the guide up that we have in the second half of the year.
We have €“ what you see now is a significantly higher revenue projection for the second half of the year than we had before. And some of that clearly is our ability to ship backlog because of the great job our team has done to free up supply.
Chuck Robbins: And I would say on the demand side, if I go back 90 days, I would say, in general, I think there was more risk, at least there felt like there was more risk. And when I talk to my customers, there is more uncertainty. And even when you hear €“ listen to the news and we talk €“ I talk to my colleagues, we were in Davos, it feels like the longer we go without seeing some major shift, then the better our customers are feeling. So obviously, we are not immune to anything, and we will have to continue to monitor it. But after traveling in Asia last week, our team being in Europe, I actually saw customers in New York while I was here this week, and customers are moving forward.
George Notter: Okay. That’s helpful. Thank you very much.
Marilyn Mora: Thanks George. Next question.
Operator: Thank you. David Vogt with UBS, you may go ahead.
David Vogt: Great. Thank you, guys and I apologize if you covered it. My line cut out a little bit more. Scott, I am just trying to clarify the order versus the backlog comment. I think if I am not mistaken, your run rate backlog had been sort of roughly $5 billion as you exited fiscal year. So, are you suggesting to us that the backlog comes down by about $3.5 billion over the next several quarters? And if that’s the case, if I just kind of back that out of your guidance, would that imply sort of that the business is effectively flat year-over-year ex the backlog drawdown as we exit €˜23 into €˜24? And then I have a quick follow-up.
Scott Herren: Yes. So, let me try and walk through some of the moving parts there, David. It’s a great question. What we said previously is we thought we would end the year with somewhere between 2x and 3x normal backlog. And normal backlog, as we said last quarter, is between $4 billion and $5 billion at the end of the year. What we now see is that it’s still going to be roughly double what that same range. So, there is definitely our ability to ship some out of the backlog, which is again, great news for our customers and our partners. The one piece that’s missing in your equation is, as we ship the backlog, remember, we said there is more than $2 billion of software in there. A lot of that software is ratable. So, as soon as we ship it, it doesn’t all drop into the revenue stream.
It ends up dropping into deferred revenue and being recognized over time. So, there is a €“ you have to consider not just the reduction in backlog, what’s the uptick in the revenue guide, but also how much of this is going to contribute to growth in deferred revenue. That may be the piece that you are missing.
David Vogt: Got it. And then maybe just as a quick follow-up, so as we enter, let’s say, the next fiscal year, I mean given your excellent work on supply chain, and the team has done a phenomenal job, would that imply €“ I mean basically, we could be back at normalized backlog within a quarter, maybe two quarters at the worst-case scenario if trends hold consistent where we are today. Is that a reasonable expectation?
Scott Herren: Rather than try to say it’s a quarter or it’s two quarters, I do expect it to normalize in fiscal €˜24.
David Vogt: Great. Thanks guys.
Marilyn Mora: Next question please.
Operator: Thank you. Tal Liani with Bank of America, you may go ahead sir.
Tal Liani: Great. He stole my thunder with the previous question. That was exactly my question. So, I want to €“ I want to understand something just a clarification on what you just answered. So, at the minimum, the decline in the backlog was $600 million at the minimum because end of year is going to be $8 million to $10 million. Take 6% of that and the backlog is now higher, so that means that the minimum year backlog declined $600 million. And that means that product growth, we should take out some of the $600 million because some of it goes into deferred revenue. Am I correct with what you just answered?
Scott Herren: Yes. Well, you are close. Let me run through it again, Tal, and if it’s still not clear, we can catch in the follow-up. The 6% was the decline in backlog from Q1 to Q2, right. So, we were able to work off about 6% of the backlog that we came into the quarter with. What we have said is, at the time that we gave you that Q2 guide in the full year, the previous full year guide, we expected to end the year with somewhere between 2x and 3x our normal backlog. We are not saying it’s going to be roughly double the normal backlog. Some of that, obviously, will ship out and will be a part of the significant guide up that we have given you in the second half revenue. Some of it, instead of turning into immediate revenue, will go into deferred revenue and be recognized ratably over time.
Chuck Robbins: And show up in RPO.
