Sami Badri: Thank you. Woo Jin. Michelle, next question.
Operator: Thank you. Tim Long with Barclays. You may go ahead, sir.
Tim Long: Thank you. Yes, one question, one follow-up. So first, maybe, Chuck, can you talk a little bit, excuse me, about the kind of margin growth trade-off with the headcount reduction, obviously, protect the margin here, but how do you think about that trade-off given the challenging growth we’ve seen? And then just on a follow-up with all of the AI comments, Chuck, could you just remind us kind of where we are with – from a product standpoint, are you seeing more traction for Silicon One or software or the full system products? If you could just give us a little color on kind of where you’re seeing that pipeline growing? Thank you.
Chuck Robbins: Yes. Thanks, Tim. So on the margin growth trade-off, we’re always considering that. And we’re very disciplined, though. And we think that gross margins are clearly a reflection of the value that your customers see and your technology and what you deliver. And if you look at a lot of our competitors, and you look at some of the market share, I mean, some of the gross margins that they have, that tells you that they’re viewed more as a commodity. And I think that our customers see real value in what we deliver to them. So while we always look at margins versus growth, we also are – we’re just disciplined across both. On the AI front, Silicon One is a big play, clearly. We’ve delivered next-generation silicon into several of the cloud providers right now.
We’ve got the Ethernet running in three of the four big ones, and we’ll use the same silicon in the enterprise data center over time. We’ve got GPUs in our UCS platforms. And so it’s evolving, but we have – I tell our teams unlike the original cloud transition that we talked on this call several times about how we were not prepared for the infrastructure play in the cloud world. I think we are absolutely ready and well equipped to succeed in this transition to AI. It will be a tailwind for us as we get into it over time.
Sami Badri: Thank you, Tim. Michelle, next question.
Operator: Thank you. Our next question comes from Aaron Rakers with Wells Fargo.
Aaron Rakers: Yes. Thanks for taking the question. I’ll speak to one, just building on that last question. I know over periods of time, you’ve talked a little bit about how large your webscale business is. Can you just remind us again the presence you have in some of the webscale opportunities, either from a size and maybe ex the AI discussion, what kind of growth rates you’re seeing, particularly with those webscale customers right now?
Chuck Robbins: So our team measures what their use cases or franchises or however you want to think about it, there are specific areas within the infrastructure that we identify for each of the webscale players. And Scott, keep me honest, I want to say we’re designed into ’16 or…
A -: 21.
Chuck Robbins: 21 of those. And so that’s how I would think about it. I don’t think that right now, if you looked at the growth numbers, they wouldn’t be reflective of what’s going on because they’re just digesting inventory right now. So they’re not in a position where they need to order a lot because lead times have normalized so much. So I don’t think that’s – it’s not even relevant. I think understanding those 21 use cases. And as I said earlier, they want dual source, and they want dual source all the way down to the silicon level. In the traditional days with carriers, they wanted two vendors who would provide two different integrated systems. In this case, that may be the case with cloud, but they also look at silicon, they look at components. They’re very deep on wanting to make sure that they have resiliency and optionality.
Scott Herren: Aaron, the only thing I’d add is – and we said it earlier, there’s no question that over time, given the way we’re positioned, both from a complete box, a white box and a silicon standpoint, there’s no question that AI is a tailwind for us longer term.
Sami Badri: Thank you, Aaron. And Michelle, we have time for one last question.
Operator: Thank you, sir. James Fish with Piper Sandler. You may go ahead, sir.
James Fish: Hey, guys, thanks for squeezing me in here. Scott, based on a couple of comments you made around gross margins. Just wondering, with supply chain starting to go the other way and supply more readily available, could we see the price increases enacted in the past now have to be given back? And any sense to how should we think about the annualized cost savings on these reductions, understanding there are people here and difficulty and what areas you guys expect to kind of reduce down and if some of those reductions are filled elsewhere in terms of like a net basis on headcount? Thanks, guys.
Scott Herren: Yes. On the price declines, you got to remember, go back to why we put the price increases in to begin with. And that was really to offset the higher cost that we were seeing from many of our suppliers as everyone was dealing with constraints and supply demand is pretty straightforward. What we haven’t seen in the wake of this, some of the commodities, the prices have come down, memory is a good example. But we haven’t seen broadly is cost decreases coming in from our providers at this point. And so with that – and you see that reflected in our gross margins, which have returned to a more normal range, but are still sitting in that 66% to 67% range. So I’m not anticipating at this point, price declines pending significant cost declines coming into us.
On the cost savings, you can see where we are year-to-date. We’ve got – if you just look at operating expenses for a minute, year-to-date, operating expenses are modestly up. And after working our way through the restructuring that we discussed today, for the full year, we think they’ll be modestly down. So I think that’s probably the right way to think about it as you’re looking to build your model.
Sami Badri: Thank you, Jim. Cisco’s next quarterly conference call, which will affect our fiscal year ’24 third quarter results will be on Wednesday, May 15, 2024, at 1:30 p.m. Pacific Time, 4:30 p.m. Eastern Time. This concludes today’s call. If you have any further questions, please feel free to contact Cisco Investor Relations, and we thank you very much for joining the call today.
Operator: Thank you for participating on today’s conference call. If you would like to listen to the call in its entirety, you may call 800-876-5258, for participants dialing from outside the U.S., please dial 203-369-3998. This concludes today’s call. You may disconnect at this time.
