Cisco cut its full-year guidance and saw stock value tumble after it reported first-quarter earnings that were less than impressive to investors.

The networking vendor reported a 20% year-over-year decline in product orders in Q1 2024. Specifically, enterprises placed 26% fewer orders and cloud service providers placed 32% fewer orders for Cisco products. Public sector deals increased by 2% year over year.

Plus, Cisco projected it will reach second-quarter revenues between $12.6 billion and $12.8 billion, implying a 6.6% year-over-year decrease.

Cisco CFO Scott Herren says the company will see "a return to order growth" in the latter half of 2024, and he touted more than $1 billion in product orders around the corner related to the demand for artificial intelligence (AI) applications.

By fiscal year 2025, CEO Chuck Robbins expects a broader Ethernet network will be built out beneath GPU infrastructure, and "we have line of sight to $1 billion-plus of orders that our teams feel pretty good that we're going to get and/or we've been designed in already," Robbins said.

Cisco's Ethernet fabric has already been deployed beneath GPUs in three of the four major hyperscalers in the United States, and the company is "working very closely with AMD, Intel and Nvidia to create solutions including Ethernet technologies, GPU-enable infrastructure and jointly tested and validated reference architectures," Robbins said.

"Even this week, yesterday, Jensen [Huang] from Nvidia and four or five of his executives came over to see us, and we spent 90 minutes together with my executive team," Robbins said. "We're beginning to see the use cases in the enterprise evolve, and we think a partnership with Nvidia, our underlying technology and our strength of go-to-market ... will be a winning combination."

The CEO insisted Cisco's decline in performance is an implementation pause rather than a macro demand-centric weakness on the enterprise and service provider sides. "We think this is an inventory issue that's sitting with our customers," Robbins said. And though this drop in demand "clearly ... surprised us, ... we feel pretty good right now," he said.

Cisco's large enterprise and service provider customers "have been very clear with us over the last 90 days this is the issue," he said. Many of the company's largest partners opened "unsolicited" conversations with the CEO at Cisco's Partner Summit "by talking about this very issue," and the consistency of those themes surprised Robbins.

The networking vendor has also done analysis on its portfolio and found the timeframe from shipment of a product until the product connects to the Meraki cloud, for example, carries a one- or two-quarter delay compared to Cisco's historic product shipment timelines.

Robbins also touted the company's "very strong quarter" for federal orders. "We looked into why a big customer like the U.S. government Department of Defense would not have the same issue. And the reality is that they have special clauses in their contracts that give them most-favored nation status when we're actually making shipment decisions. We prioritized [the DoD] during the supply chain crisis, so they never had a big influx. They had a very steady flow of products across, which explains why their order numbers look fairly normal," Robbins said.

In addition, Cisco reported 20% year-over-year Q1 growth in transactional advanced services, or implementation services, "and the forecast for Q2 is almost double digits again," Robbins said. "It's clear that customers are asking us to come help them get this done." One Cisco customer, for example, hired 200 people in the last three months who are exclusively focused on implementing Cisco technology for customers.