While we get situated, I'll read the disclosure off of the top of my head. What do you want? For any research disclosures. Yeah, yeah. please see the Morgan Stanley website at researchdisclosures.com, and or reach out to your Morgan Stanley sales representative. We are delighted today to have Cisco here with us. I'm Meta Marshall. I cover networking and cybersecurity here at Morgan Stanley. We're delighted to have the CFO, Mark Patterson, and Martin Lund, EVP of Hardware and Silicon One Systems. I think, Martin, this is one of your first more public appearances, so we're very happy to have you here. So Oh, he's been very public. Yeah. It's hard to keep him off stage. Yeah. Exactly. All right. Mark, maybe let's start with you. You know, in fiscal Q2, you guys delivered revenue with product orders accelerating 18% growth. You subsequently raised your full year guidance. Just what demand trends are you seeing? You know, maybe kind of contextualize that into the different end markets that Cisco serves. Sure. Happy to. Yeah, first off, I would just say, as you mentioned, 18%. Yeah really strong, demand is what we're seeing right now. I'd say the other word that I'd use is very balanced. Mm-hmm. As you look at it, the 18%, if you exclude hyperscale, which we all know was a big number for the quarter, it would still have grown 10%, so double digits on a global basis, just ex hyperscale. If you look at it by geography, you look at it by vertical, the geographies, all three geographies that we manage grew double digits. All three of them showed accelerated growth in Q2 than what they showed in Q1. Really strong growth there. Verticals were really strong. If you look at public sector, it grew double digits in all three of the geographies as well. Enterprise accelerated from Q1 to Q2. SP and cloud also, we're seeing significant acceleration. The other thing that we talked a lot about on the call is two big, massive, multi-billion dollar opportunities that are going quite well. One is on the AI infrastructure side and the other is really this campus data center or campus refresh rather. Both show really good, you know, strength. If you look at the AI side, we took $2.1 billion in new orders from hyperscalers. That's what we did. In 90 days, we did the same as we did all of last year. Right. You're seeing from a lot of the work that Martin and his team are doing, really good momentum, really good relationship building, but also we're delivering the technology that they need most importantly. On the campus side, we saw, you know, really strong growth in campus overall. If you looked at the individual components and you looked at wireless, routing, campus switching, all three of those areas are moving to the new platforms faster than prior generation launches. We're very, very happy with what we're seeing in both of those spaces. Got it. You know, maybe just jumping into memory and growth margins. Oh, boy. That's, you know, we can't save that for very long. You know, you were growth margins of fiscal Q2, saw a little bit of pressure. This was, you know, you mentioned mix shift towards hardware, but also just kind of rising memory prices. You know, just as you think about AI infrastructure ramping, memory continuing to get more expensive, can you just walk through the mitigation steps you guys are taking on growth margins and then just the trajectory of growth margins throughout the year? Yeah. We should take a moment on this one because as you can imagine, this isn't the first question - Right. Not the first time you got that question. on this topic. There's really two big things that are at play here. One is memory. Mm-hmm. I'll talk about that here in a second. The other is mix in terms- Yeah of what we're selling and the acceleration that we're seeing in different parts of the portfolio. The first in terms of memory, what we're really doing is looking to control what we can control. Obviously, everybody's seen the sort of unprecedented, you know, pace at which memory prices are going up. There's three things that we really wanted to outline that we're doing, that we can control and looking at proactively. One is just updating our prices. You're going to actually see our latest price increase will go in effect on Monday. We're going to stay very close to that, in particular on the compute side more than anything, but also some of the higher memory products just across the portfolio. The second thing is really, you know, we've had some very generous Ts and Cs with partners and customers that allow a fairly lengthy time between when we announce a price increase to when it takes place, as well as, okay, now it's taking place, but if you put a quote out already, we'll honor that for another 30 days. Both of those areas we're tightening substantially. You know, I've had discussions with both partners and customers, and I think they all get it, right? They don't love it, but they understand this is the new way of doing business. The third thing that we just talked about was we're really leaning into our financial position and strength in securing the supply that we need. If you look at our advanced purchase commitments, just in the last 90 days, those are up $1.8 billion, and a lot of that is to meet the overall demand acceleration that we talked about, in particular hyperscale, but then also the memory supply that we need too. On the mix side, you know, what I would tell you there is just we're seeing significant growth in our hardware business. It grew in excess of 20% in Q2. Our software business is a little bit softer right now, in particular with security. You know, as you look at those two pieces, kind of how that impacts, you know, gross margins, on the hardware side, I would just say we have very good margins actually in our hardware. Yeah. They're just not quite as good as software, obviously. Right. As you see, you know, just to give you kind of a data point on on how significant of impact it has, if we had grown security mid-single digits in terms of revenue in Q2 versus down 4%, which we posted, that would've been one point of gross margin right off the top. Okay. As you look at the hyperscale acceleration, you know, they love our silicon and optics and they love the high-performance systems. They don't buy as much though of the software and the services. It's not like for every incremental dollar of hyperscale revenue that we got to add incremental OpEx. Yeah. It's got a very different go-to-market, very different ratio, if you will, in terms of our overall cost. As that business really ramps, that'll help our overall operating margin. Net, net, just to say the last piece on this, I think it's important to note that we're going to be very focused on profitability and very focused on operating margin. Mm-hmm. The last couple of quarters we've guided 23 and a half, sorry, 33.5% to 34.5% in terms of our overall, you know, operating margin. We also guided that for Q3. You're going to see that focus on despite the ups and downs you may see in gross margin, you're going to see us very focused on the overall operating margin performance. Q2 is a great example of that. Despite the headwinds we saw in gross margins, we actually posted our highest operating margin in four quarters. Mm-hmm. We're focused on EPS growth being faster than the top line growth. You saw that in the first half of FY 2026. You also see it in our guide for the full year of FY 2026 as well. you know, we're going to jump in with Martin in a second around kind of everything happening with silicon and Cloud. you know, Cisco has been on this journey over the last five to 10 years to have more software, more recurring revenue. Just how do you make sure that that kind of software security recurring revenue story continues to build, even in light of kind of some of the greater opportunities you're seeing on the AI side of the business right now? Yeah. It's still a very important part of our business. Even though we're seeing this massive acceleration in hardware, it was still, you know, a little over 50% of our business in terms of software and subscriptions. Mm-hmm in Q2. As I mentioned earlier, it's a big part of our overall profitability equation and mix as well. We're still, you know, we're still seeing good growth in ARR and RPO. We've got $43 billion of RPO on the books right now, and that's going to certainly help just drive the predictability and the durable growth that we're trying to drive over time. Okay. I want to step into the kind of relationships you guys have had with the clouds, maybe a question for both of you guys, just in terms of what are the steps that you guys took over the last five to 10 years to increase, you know, to really kind of restart your relationships with the hyperscalers in some ways? Just how do you think that that can continue to build over the next two years? I'll just I'll say a couple words and then Martin. Yeah can jump in. I have to say some of this because he won't, he won't actually compliment himself. I think there's two things that come to mind for me. One is we made some key acquisitions. You know, I think certainly Leaba was a big acquisition for us. Acacia was another big acquisition for us. Then we just brought in some of the very best talent in the industry. That's certainly Martin. It's also a number of folks that Martin brought in on his team as well. So I think starting with the very best talent was a big difference as well. Yeah, I think it also started to, if you go back- Mm-hmm it is a strategy shift that Cisco was treating the hyperscalers a little bit like a big enterprise. Mm-hmm. They're different. They're very different in that sense. When buying a Leaba and investing into core technology, they also, we changed the way we approached the customer and said, "Listen, you can. We will meet you where you need us to be. Right. If you want us to buy a branded Cisco box with all our capabilities in it, fine, we will do that. You want us to build you a white box with our own silicon in it, we will do that. You would want just to buy the silicon or the components, and you will put the pieces together, then we will do that too." A complete change in posture. That was sort of, I think, the pivotal point. Now you have to deliver. Mm-hmm. Now you can get eligible for doing business. Yeah. Now you have to prove yourself. Over the last, I would say five, 10 years, Cisco have proven themself in every one of the hyperscalers- Mm-hmm in terms of we can deliver good technology, we are reliable, we actually know how to support you much better now 'cause it's a different way. Yeah. It's not like a 1-800 number, right? I like to say, doing business at hyperscalers is a little bit like going to final exams every day. Every day. Just that you can't pass, but you can fail. You can mess up and then you're out, every day. Right. Another way to think of it, I spent a little bit of time at other companies in the past, including Microsoft, and on the inside of that is you understand the stakes are so high, the scale is so big that. There is no room for errors, and escalations are happening in nanoseconds or microseconds, not in hours. That's the mindset that we have built up a culture around. Okay, that's good. Now you have to be competitive, right? Yeah. You have to build chips and systems and optics. Oh. I'll give There we go. Oh, For example, this is one of those chips. This is a G200. This is probably very expensive. It's not functional. Yeah. Once you touch it's game over. This is a hundred terabit chip. This was announced just recently. We announced another version of that. I have few of them in my pockets here. Just in case you can see. What you may not know is that there are very, very few companies in the world that can actually design these solutions. Broadcom is one of them. Yeah. This is a Tomahawk 6 equivalent. It's called G200. This is a Jericho equivalent. It's actually double Jericho, but it's called P200. There's essentially two other companies that can do this in the world. Yeah. Broadcom and NVIDIA. Now we're in good company. I think what we come at is a slightly different approach. We come at it as systems, you know, with a systems background, with a networking background, and that sets us apart, I think, and it will do even more so over time. I think when we're moving the AI, you know, revolution, it's a lot of it is data movement that is at the essence of it, which is networking. Yeah. We are moving into a token economics model where it's about uptime and dollars per token. It's, you know, that's kind of what we do pretty well. We've done that with hyperscalers in the old days. They're called telcos. Yeah. Right? Their top times, five nines. Yeah. It's about everything needs to be working. I think that sets us apart as a strategic supplier. Now that we show up, we know how to do business with them. We've proven that we're willing to be flexible and do business on their terms. Yeah. Now we have roadmaps and technology. I think that's what I think is different. Yeah. Okay. I mean, you just announced and showed us, the G200 Silicon One chip. You know, maybe just how does that position you guys in the scale-out market, and how does the programmability of Silicon One kind of differentiate you guys in terms of total cost of ownership? Yeah, I think that's a very important part. First of all, Time to market is definitely key in this space, and we're, I think we're in the playing field alongside with others. We're not just a me-too copycat of something else. We have a distinct and different approach to networks, silicon, and it's what we call the Silicon One architecture. It's a unified architecture that allows us to do both switching and routing in the same architecture where others are having different architectures that are distinct and different. Yeah. They, they kind of don't really actually play with each other. They're different software stack and behaviors. We have one. At the heart of that is a programmable engine that allows us to basically drop down microcode of, it's called P4, into the chip that will help it determine its behavior or forwarding behavior. We can do that after the chip is in the network. We don't have to spin a chip. A new requirement shows up, we don't have to go back and build a new chip to bring it out. We can write some software and meet it. That becomes increasingly important as you're seeing, I mean, the networking for AI is changing so fast. We are moving towards more of a heterogeneous compute architectures where you have different types of compute. They will have different behaviors. We can meet those behaviors programmably. Others are hard-coded of, and have very, you know, fixed capabilities. We have this programmability, and what it also allows us to do. We're still at the beginning of that, I would say. Okay. You know, I'll ask it 'cause somebody else in the audience will if I don't. Just how do you see your opportunities in the spine, within hyperscalers? Which seemingly gets the most attention. The, I mean, we have adoption with hyperscalers, five out of six, I think we have said repeatedly, and we have adoption in many different roles. The scale-out opportunity is where we have seen a lot, but also in the scale-across where we see a lot of adoption. The silicon that we built is optimized for these applications, and we can reprogram them, so they can fit the role that is needed. I think we feel very good about the space. There's a lot more dynamics than just technology. Yeah. There's also business models and other partnership that gets into that. I think when I look at our position, it's like you have to be eligible, right? You have to have products, you have to be eligible, you have to be a trusted vendor. Yeah. You can be trusted to show up and solve problems as they are. I think we're on that journey. I think we've earned our, you know, earned trust in these.. Which is a very big difference, like... Yeah for 10 years ago, where we were just not relevant. Yeah. Then maybe just, you know, last question to, you know, co-packaged optics has been, we've had every optical networking vendor here, all week talking about it. You guys have, you know, not only Leaba, Luxtera, you have a lot of pieces of the. Yeah portfolio that kind of help. Just how are you guys thinking about the co-packaged optics opportunity? Well, first of all, it will happen at some point in time. Mm-hmm. There is a lot of push in the marketplace for it to happen maybe sooner than later. At the end of the day, it's a big transition for the industry. Yeah. Customers will have to get comfortable with not only, you know, the business model associated with this and vendor concentration and so forth, but also the operational realities of how does this stuff actually perform in a network. That stuff is not overnight. It will not be flip a switch. You mentioned Luxtera, and Luxtera is an acquisition that was done a number of years ago. It's also in my group and- Yeah and it is, have some of the best silicon photonics technology, which is critical for the CPO adoption. And, while we haven't announced anything yet, we did do a technology demonstration of a CPO solution in 2023. kind of watch the space. Okay, got it. Mark, I'm going to circle back to you. You know, you're seeing a lot of, this campus switching, base, you know, go through a larger refresh. Just what inning are we here? Just how is that conversation that maybe is starting with campus refresh and accompanying kind of all this part of what you've called AI modernization. Mm-hmm. kind of across the greater stack? Yeah, I'd say I think Chuck characterized it as the top of the first inning even. Yeah. Very early on, multi-year, multi-billion dollar opportunity. I think that as I look at campus, I would say there's probably more reasons today for customers to upgrade in terms of the AI capabilities making your network smarter, faster, more autonomous, the bringing together of the network and security, the fact that there's a real recognition that aged-out equipment is a big time security risk given the sophistication of security threats today with AI. I think there's like more reasons than ever to upgrade. Yep. Probably our portfolio is in as good a shape or better than I've seen it in a long, long time in terms of all the refresh that we've done kind of up and down the stack as well. Got it. Just, you know, you mentioned security. Maybe security has kind of underperformed expectations, at least from investor standpoint over the past couple of quarters. You know, just where do you see your guys, in terms of being able to kind of position yourself better or some of the changes that are just taking time to kind of show up? Yeah. I'd say, you know, probably the biggest headwind that we've seen in terms of just revenue and security is this transition that we're seeing with Splunk and customers moving to cloud versus on-prem. The accounting's different. Instead of recognizing it upfront, you recognize it ratably over the life of the contract. In the end, that's actually a really good transition. We can deliver features faster, they can adopt technology, and we see the longer term prospect of revenue actually much higher than we would on-prem. That's a headwind we're facing. On the sort of organic or ex-Splunk security side, we're actually seeing really good momentum that it's just going to take some time for it to translate into revenue growth, given a lot of the offers are ratable and we still have some legacy business as well that is a headwind there. In terms of the new offers, you know, you look at Hypershield, you look at Secure Access, you look at XDR and AI Defense, just that, those products right there, 1,000 new customers that we signed up in Q2 alone, which was 100% more. Yeah. than we signed up in Q1. We're seeing really good traction. We think by the end of this fiscal, if you kind of put the transition aside for Splunk, which is what we talked about, just the organic security business, we think will be approaching double digits. We think we're on the right track. It's just going to take time. Recognize it's taking a little longer than we would've liked, but we- Yeah. We also were real clear and took the risk out of the guidance that we don't need a substantial increase from here. I get this question a lot from investors. I'm sure you get it as well. Mm-hmm. Just in terms of why does Cisco need to stay together? You know, it's, there's a lot of different businesses, there's a lot of different, areas. Just how do you kind of express what the value of Cisco together is? Yeah, I think I have gotten that question. But I think it's just I think it's one of the unique advantages that we have in really providing a full stack for AI, you know, use cases as well as more traditional use cases that includes silicon, optics, networking, observability, security, collaboration, everything that our customers really need to get the most out of all of those technologies, if you will. I think that together, those really just provide our customers to be able to unlock value that they wouldn't be able to do otherwise, we find it pretty compelling. We're really the only one that can bring all that together. Yeah. maybe just last question, you know. It's also a key part of our overall profitability. Yeah. Each one of those plays a role as well. Cash flow. Minor topic. You know, that kind of rounds out the conversation of just in terms of capital allocation, you know, you talked about there's various parts, pieces of the business generate a lot of cash. Yep. Just how do you think about capital allocation and, you know, we've seen some depressed software valuations of late? Yeah. Does that change how your aperture for kind of our appetite for M&A? Yeah. I think, no real change in capital allocation policy. What you have seen, I think, with G2 and what he's really driving is, more. Yeah. -here and versus buy. Yep. At the same time, we're going to be very opportunistic and understand that there will always be opportunities to ultimately get to market faster or build the technology that we need and to drive revenues faster if we were to do something inorganic. We'll continue to look at it. The big thing is just is there a moat and can we really drive differentiation? Yeah. I think that's why you're seeing more tech and talent, more stuff that is just going to either add a feature or get us to market faster or grow the top line faster. Okay. Perfect. All right. Well, Mark Martin, thanks so much for being here today. Thank you, Meta Marshall. Thank you. Appreciate it.