TL;DR:
- Cisco CEO Chuck Robbins reveals $500 million equipment sales to leading cloud computing companies for AI needs.
- Cloud companies embrace Cisco’s Ethernet technology over Infiniband for AI applications.
- Ultra Ethernet Consortium formed with industry giants to enhance Ethernet speed and AI compatibility.
- Cisco aims to secure a significant share in burgeoning AI cloud market, learning from past missed opportunities.
- Morgan Stanley analyst emphasizes growing relevance within hyperscaler customer base despite modest revenue.
Main AI News:
In a surprising revelation during the recent earnings conference call, Cisco CEO Chuck Robbins unveiled a remarkable achievement: the company has successfully generated over $500 million in sales from supplying cutting-edge equipment to major cloud computing entities to cater to their AI requirements.
The cloud giants, colloquially known as hyperscalers in the tech realm, are opting for Cisco’s offerings due to their innovative application of Ethernet – the networking technology that the company is renowned for – in fulfilling their AI demands, as opposed to the conventional Infiniband. Infiniband, which dominates the high-speed networking technology landscape within data centers, was cornered by Nvidia when it acquired industry leader Mellanox Technologies for a staggering $6.9 billion in 2019.
Taking strategic action, Cisco joined forces with industry stalwarts, including AMD, Arista, Broadcom, HPE, Intel, Meta, and Microsoft. Together, they formed the Ultra Ethernet Consortium last month, aimed at accelerating Ethernet’s speed to double that of the current fastest 400 gigabits speeds. Moreover, the consortium is focused on enhancing the technology to adeptly manage the demands of AI applications.
Robbins elaborated, “To date, we have secured orders exceeding half a billion dollars for AI Ethernet fabrics. Furthermore, we are actively piloting the integration of 800 gig capabilities for AI training fabrics.”
While the initial half-billion revenue might seem relatively minor in the context of Cisco’s fiscal year 2023’s record-breaking $57 billion in sales and $3.07 earnings per share, Robbins anticipates that the nascent AI cloud market’s potential will far outshine its predecessor. He acknowledges the prior oversight during the initial cloud build-out phase and vows that this time Cisco will actively claim its rightful share of the pie.
Robbins asserted, “The magnitude of this AI transition to Ethernet is expected to be three to four times greater than that of the original cloud build-out. Regrettably, we were unable to seize the opportunity during the initial cloud wave, as well-documented as it is.“
This assertion is a direct reference to how tech giants like Google and Facebook, operating massive data centers, opted to create their own data center networking technologies or collaborated with specialists like Arista Networks.
Robbins expressed his confidence, affirming that Cisco has firmly positioned itself for this AI transition to Ethernet. He pointed out that the company has already secured a presence in 21 use cases spanning the top six providers within this domain. He envisages that this momentum will persist and gain further traction in the coming years.
However, Meta Marshall, an analyst at Morgan Stanley, remains intrigued yet cautious. In a post-earnings research note, Marshall noted the intense investor focus on AI infrastructure-focused companies and Cisco’s role therein. With Cisco’s market capitalization currently hovering around $225 billion, a quarter of Nvidia’s monumental $1 trillion valuation, the emphasis on Cisco’s AI narrative is evident.
While the $500 million achieved thus far might seem modest, Marshall emphasized the significance of Cisco’s growing relevance within this customer segment. She pointed out that even though Cisco’s market share within the hyperscalers might be comparatively smaller, the trend toward increased penetration is a positive sign.
Conclusion:
Cisco’s strategic pivot towards the AI market after missing the initial cloud computing boom marks a significant shift. The company’s innovative approach, collaborative consortium, and positioning within the hyperscaler landscape suggest a determined effort to capitalize on the growing AI cloud market, with the potential for a substantial impact on Cisco’s market presence and industry dynamics.
