Scott Herren: I hope that’s €“ yes, it will show up in deferred revenue and RPO. I hope that’s clear, Tal, if not, we can follow-up.
Tal Liani: Yes. Very clear. So, my question €“ I want to go back to the basics and understand, last quarter, we were all concerned about environment slowing down. We don’t hear you saying environment continues to slow down. We didn’t hear Arista saying it. We didn’t hear you saying that service providers were weak. Can you take us through the big customer account and tell us what is the situation of spending with your enterprise customers, commercial customers, service provider customers? Did the environment further deteriorate from the previous quarter, or did it stabilize? And does it make you think that at least the trends so far, the year would continue to be normal on a sequential basis, or do you expect some more deterioration going forward?
Chuck Robbins: Yes, Tal. So, we €“ on the enterprise and commercial space, we saw a double-digit sequential growth, which is in line with what we have seen historically. And as I have said, public sector was actually higher than historical ranges and Federal was €“ U.S. Federal was extremely strong during the quarter from a demand perspective. On the service provider side, I think you are seeing many of our competitors and peers, some of them anyway, don’t give order data. And so I think for us, those customers are the ones who did the most planning for long-term ordering. So, as lead times begin to come down, we would expect them to change their ordering patterns and they have already got 6 months to 12 months’ worth of consumption lined up in the backlog.
So, we will see that normalize over the next few quarters. I will say in the web scale space, there are roughly 35 use cases or franchises within the largest players, and we have actually been designed into 18 of those at this point. And we are very confident that we will continue to get designed in. I got a note today that we had just got noticed about a new design win today. And so we are still very optimistic long-term, we just think it’s a short-term normalization for our service provider space.
Tal Liani: Got it. Layoffs and the economic slowdown, my question was whether these factors you see an impact on your business on orders or they stabilized from previous quarter?
Chuck Robbins: Well, you mean layoffs in €“ like in our customers?
Tal Liani: Yes, across the industry?
Chuck Robbins: Yes. Well, if you think about what occurred, there was a lot of companies that had a massive surge in employment, and we didn’t. But I think the thing that we are seeing right now is that we have seen the sequential growth be in line and some €“ like it was towards the lower end. So, it’s not performing at the highest end, but I think that it’s in range. And if you €“ and I also shared that in Q3, our current forecast is also in line sequentially with historical ranges, which we normally don’t give. We just wanted you guys to have that visibility. So look, it’s certainly an uncertain time, and I am not €“ I don’t want to paint a picture that we are immune. And I don’t want to paint a picture that every customer is spending everywhere on everything.
But we have been able to maintain and continue to see our customers moving forward with projects. And the one thing that was really encouraging for me was to see January as strong as it was, given our €“ the uncertainty around €˜23 budgets.
Tal Liani: Got it. Thank you.
Marilyn Mora: Thanks Tal. Next question.
Operator: Thank you. Tim Long with Barclays, you may go ahead sir.
Tim Long: Thank you. Just hoping I can get two in here. One, could you talk a little bit about, obviously, the enterprise campus is still very strong. But I think traditionally, that’s kind of a GDP-ish type of business that has been running above that. And it sounds like your confidence for next year is pretty strong as well. So maybe, Chuck, any insights like what’s kind of different there? Are we starting to decouple from like macro GDP for that campus networking fees? Any thoughts there would be great. And then second, obviously, a lot of excitement out there about AI, ChatGPT, all that stuff. Just curious what you think for your data center and cloud businesses, what kind of impact if there is kind of more of an arms race with big customers around AI, what that would mean for switching and routing business for you guys? Thank you.
Chuck Robbins: Thanks Tim. So first one, on enterprise campus, I do think that the pandemic was a great educator for our customers about the need to maintain modernized infrastructure because moving into the pandemic, I think it became quite obvious to many of our customers that they had not been updating, and they had €“ they were sweating assets a little longer. So, that’s one thing that’s shifted. The second is we are really seeing €“ these trends of multi-cloud, the trend of hybrid work and the overall re-architecture of their networks. If you really think about what €“ how we built networks for 20 years, we built it on a premise that we have branches and we have a private data center, and all the traffic flows are very understood.
Now, I have to upgrade my entire infrastructure to deal with this brand-new world that I live in, supporting hybrid work, supporting hybrid cloud, etcetera. So, I think that’s been driving a lot of this as well as safety in the office, IoT, creating new experiences to get our employees back to work, etcetera. So, that’s what I think has been driving a lot of the enterprise campus stuff. As it relates to your second question around the AI play, I think that look, these AI networks that are being built, whether it’s in web scale or whether we have some of our largest enterprise customers that are building AI networks and training AI algorithms, these are €“ like in the web scale space, they are like bigger than the core infrastructure networks that they are running, which was astonishing to me when I learned that.
And the network performance required is 3x to 4x what they have historically needed. And so this is a massive opportunity for us and we are in active discussions with lots of customers around it. And so we do think that this shift is going to create a good opportunity for us in the future.
Tim Long: Okay. Thank you very much.
Marilyn Mora: Thanks Tim. Next question.
Operator: Thank you. Samik Chatterjee with JPMorgan, you may go ahead sir.
Samik Chatterjee: Yes. Hi. Thanks for taking my question. Congrats on the strong guide. Maybe if I could just quickly hit on two of the product areas mostly security, what sort of benefits are you seeing given your broad portfolio there in terms of customers looking to maybe some level of €“ consolidation just given your position as a more broader security portfolio supplier. And what sort of benefit does supply eases, maybe on the firewall side, should we expect revenue growth? And a similar question on Internet for the Future segment seems like a bit more supply constrained than other segments. But what sort of are you €“ what are you seeing on the supply side there? Thank you.
Chuck Robbins: Okay. I will take security and you can take the supply side. So, I think that €“ look, all of our customers definitely want to consolidate their security infrastructure. They have got 40, 50 different vendors, and trying to correlate these threats is very difficult and it’s just €“ you can’t add enough people. So, our teams right now are heads down working on some new capabilities that we are going to be bringing out over the next 12 months to 18 months, and some of that is focused on exactly that, how do we consolidate and how do we create the ability to correlate threats in real time much more effectively. And so we think that you are probably going to start seeing the benefit of that three quarters or four quarters out.
So, the team has got work to do. We have hired a significant amount of outside talent. We have invested heavily in this space. So, while we may see €“ we may not see the growth that you want to see in the near-term, but you will see this begin to accelerate in FY €˜24. And I think that we will €“ we are playing a long game here and really believe that there is a lot of consolidation that we can drive over the next few years. Scott?
Scott Herren: Yes. Internet for the Future, Samik, it is one of the spaces. We have worked so hard and done so much across our entire product portfolio. So, we have made great progress in many cases. I would say Internet for the Future is one of the spaces where we are still €“ we have improved lead times there, but we are still not back to more normal lead times in that space. What I would also say though, is we have already picked up orders just in the last several weeks from some of our peers that are also selling into that same space who couldn’t meet demand. And those orders came to us instead. So, while €“ it’s a space we continue to work on. And while we are seeing improvement, it’s not where we want it to be, I feel like we are performing pretty well on the supply side and Internet for the Future.
Samik Chatterjee: Thank you.
