And as Chuck mentioned, we’re optimistic that it will close ahead of what we had originally anticipated. We have not included any impact from the Splunk acquisition in our forward-looking guidance. Turning to our guidance. As previously mentioned, we have reset our expectations for the second half of the year to account for the caution around macro uncertainty, the continued absorption by our customers of record levels of product shipments they received from us and the weakness of our Service Provider market. For Q3, our guidance is as follows, we expect revenue to be in the range of $12.1 billion to $12.3 billion. We anticipate the non-GAAP gross margin to be in the range of 66% to 67%. Non-GAAP operating margin is expected to be in the range of 33.5% to 34.5%.
Non-GAAP earnings per share is expected to range from $0.84 to $0.86. For fiscal year ’24, our guidance is as follows, we expect revenue to be in the range of $51.5 billion to $52.5 billion. Non-GAAP earnings per share guidance is expected to range from $3.68 to $3.74. In both our Q3 and full year guidance, we’re assuming a non-GAAP effective tax rate of 19%. Sami, let’s now move into the Q&A.
Sami Badri: Thank you, Scott. Before we start the Q&A portion of the call, I would like to remind analysts to ask one question and a single follow-up question. Operator, can we move to the first analyst in the queue.
Operator: Thank you, sir. Amit Daryanani with Evercore. You may go ahead, sir.
Amit Daryanani: Yes, good afternoon. I’ll ask both my questions upfront. Chuck, when I think about the lower revenue guide for the full year by about 500 basis points versus 90 days ago. Can you just touch on how much of that do you think is the digestion getting extended versus the macro versus the telco weakness? And then how do you sort of think about getting back to a positive revenue cadence organically? And then as a follow-up, I’d love to just understand this Nvidia announcement you folks had. There’s a bit of a perception that it’s more about servers, less about networking. I would love for you to just flush that out, what that means for Cisco? Thank you.
Chuck Robbins: Amit, thank you very much. So obviously, with the lower guide, we talked about the feeling that there’s some macro uncertainty. We talk to our teams in preparation for this, and they obviously submitted their forecast. And what we really saw was what they previously told us 90 days ago relative to the second half versus what they told us a couple of weeks ago had changed materially, which means customers are pushing things out and putting a little more scrutiny on them. So that’s the difference that we’ve seen. As far as trying to break down what percentage comes from each of those – the three, including the digestion issue, as well as the telco and SP piece. I think it’s pretty difficult to do, honestly. However, I will say that we think that the consumption of the elevated inventory levels should be – we should be through that by the end of our fiscal year.
We think that SP telcos, the SP telco and cable side of it, we’re hopeful that in the ’25, they will begin investing again. We originally had anticipated that they would begin to invest in the second half of this year, and we no longer believe that to be true. And I think that – so I think the consumption issue and the SP thing or the consumption issue is temporary through the end of the year. The macro thing is one that we’re going to have to wait and see and the SP telco probably similarly. And all of these things led us obviously to reset the second half of the year. On the Nvidia partnership, it is definitely Ethernet. I was in the meeting when we first talked about this with Jensen, and he agreed that we would include our Ethernet technology with their GPUs and creating the stack.
There will also be servers as well, and there’ll be multiple versions of this over time. So – but it will include our Ethernet technology when they’re connecting multiple clusters.
Sami Badri: Thank you, Amit. Michelle, we have the next analyst.
Operator: Thank you. Meta Marshall with Morgan Stanley. You may go ahead.
Meta Marshall: Great. Thanks. Maybe you’ve mentioned Service Provider, but I guess just getting a sense of whether you’re seeing more weakness on data center or edge or if it comes to kind of the five investment priorities that you had noted that enterprises had a couple of quarters ago, or any one of those areas still getting prioritized significantly versus not getting prioritized significantly? And then just maybe as a second question, how are you seeing enterprises think about AI and think about where the budgets for AI are coming from? Just any commentary would be helpful there. Thanks.
Chuck Robbins: Yes. Thanks, Meta. So I would say that what we do see customers investing in is clearly cybersecurity. We see observability as you saw the 16% growth rate. We even saw collaboration positive this quarter, which was a good sign. They’re at various phases of still dealing with this hybrid work situation. We had a very strong quarter with our devices, our video device businesses. We see customers investing in their customer experience through technologies like contact center. And so we see a lot of that. We see customers continuing to invest in their application rearchitecture, which leads to both observability opportunities, as well as the rearchitecture of their networks to deal with the traffic flows that we’ve been talking about for a couple of years.
I think the real issue right now is that we shipped so much networking in our core business that that’s where the challenge is that they’re just trying to get all that implemented right now. As it relates to the enterprise and how they’re thinking about AI, what I would tell you is that over the last 90 days, we began to see the – the pipeline for AI use cases in the enterprise began to emerge. And there’s a heavy work going on in financial services. I would say it’s early in what they’re trying to think through, but we are seeing opportunities arise. And I think that there have been some comments, not enough for me to translate this to a massive trend, but there were some comments from some of our field teams that they see customers holding budget back just to be ready to extend it on AI once they get their strategy fully baked.
So that’s about what I could tell you at this point.
Sami Badri: Thank you, Meta. Michelle, can we go to the next analyst.
Operator: Yes, David Vogt with UBS. You may go ahead.
David Vogt: Great. Thanks, guys, for taking my question. So maybe I just want to step back for a second, Chuck and maybe for Scott also. If I look at your guide for this year, I mean, we’re basically back to fiscal ’19 revenue levels. So I’m just trying to think about how your longer-term model works in the context of that 5% to 7% guide that you laid out at the investor briefing a number of years ago as a sort of investor – as sort of customer digest product. Obviously, it would suggest that maybe there’s some more share loss going on in the core networking portfolio, given some of the other parts of the business has grown. So I just wanted to kind of try to get a sense for how you’re thinking about the portfolio today, given we’re kind of back to fiscal ’19.
And then from a profitability standpoint, obviously, you’ve done a tremendous job, and I would imagine the cost cutting goes along those lines to keep margins higher. But is there an opportunity to use margin and maybe price going forward to take back some of the share if there’s a disruption in the market by a potential strategic transaction in the marketplace today? Thanks.
Scott Herren: Yes, David, I’ll start and then Chuck, you can chime in on share. The way to think about the 5% to 7%, if you go back to when we gave that metric, you remember, it was in 2021, actually pre all of the supply chain volatility that we’ve seen. And since then, of course, we’ve seen the supply chain set in, which caused a spike in product orders and then a subsequent big building up of our backlog as we cleared the backlog, we saw a spike in revenue. And so it’s been difficult to look at year-on-year compares as all those dynamics were going on. What we’re seeing now is as we’ve cleared the backlog, and we cleared it very quickly, given the strength of our supply chain team, that bottleneck has just moved downstream.
So I don’t think you can look at this year’s revenue and try to somehow compare it to historical because of all the moving parts underneath the covers. What underpinned that 5% to 7% when we gave it to you was that’s the aggregated growth of the TAM of the markets that we play in, right? And so at this point, we still see that as the longer term where we’re headed. I think looking at year-on-year growth rates, I don’t think you’re going to see those growth rates begin to normalize until we work through the inventory that’s in the field right now, which is one of the biggest headwinds we’ve got, right? Then we can get back to regular ordering and then you need to lap that, right? You need to go four quarters out to be able to compare it to a more normalized point.
So I think that’s the way you need to think about that longer term. But there’s no change at this point. We’ll update the longer-term model after we finish the acquisition of Splunk and can give you better insight into what we look like as a combined company.
Chuck Robbins: And David, on the share loss, I think if you look at the – just look at the last published reports that came out after Q…
Scott Herren: Q3, calendar…
Chuck Robbins: Calendar Q3, the – in our four largest markets, so if you take campus switching, you take wireless and you take SP routing, we actually gained share. So I don’t know where the share loss thesis is coming from. When you look at data center switching, you will see it show up as a share loss. But to be – we have to understand that one of our major competitors there reports their web scale sales into data center switching, and we report our web scale sales into SP routing. So those turn into sort of apples and oranges categories. But the others, based on the last reports that were put out, we actually have gained share if you look at a rolling four quarter even over the last 3 years.
Sami Badri: Thank you, David. Michelle, next analyst.
Operator: Thank you. Simon Leopold with Raymond James. You may go ahead, sir.
Simon Leopold: Thanks for taking the question. I’ve got an easy one and a little bit harder one. I’ll start with the easy one and ask the other. It just looks like your order trajectory is getting somewhat better. So the orders this quarter down 12%, not too bad. And I know you don’t forecast orders, but maybe if you can talk about when you expect orders could turn positive again, given the comparison and the trend. The other question I wanted to see if you could discuss how you envision the AI clusters in terms of will the web-scale operators choose multiple vendors in a single cluster or will they designate maybe different data centers to different suppliers? Or will they mix and match, how do you see the split playing out, particularly in the hyperscale opportunity? And I really mean this more longer term, ’25, ’26, not currently when we’re dominated by InfiniBand, but when Ethernet starts taking more share. Thank you.
Chuck Robbins: Yes. Thanks, Simon. So on the order trajectory, I think what – we clearly don’t guide bookings. But what I would tell you is that even as our teams modified their second half outlook, the second half will still be more favorable than the first half. So your assessment of sort of the trajectory, I think, is valid, and I’ll leave it at that. On the AI clusters, I think it’s a good question because what you’ll hear is us and competitors talking about a number of web scale players that are using our technology underneath GPUs, our Ethernet technology and our GPUs. And so I think it’s important to remember, they always tend to have a dual vendor strategy. They always want two sources, and so we’re both actually – the two of us are actually playing in this space today.
And I’d say today, they’re completely homogeneous clusters. And I think it’s too early to tell whether there will be some benefit over time for them to mix those. My sense is, unless there’s something that changes significantly or there’s some sort of technology reason for GPUs to be mixed, which I can’t speak to at this point. I don’t think the underlying network will be mixed. I just don’t think there’s any benefit for them to do that.
Sami Badri: Thank you, Simon. Michele, next question.
Operator: Thank you. Tal Liani with Bank of America. You may go ahead.
Tal Liani: Hi. I have two questions. The first one is security. The market is great. And we met 2 years ago and 3 years ago when you spoke about new strategy and going to market, but it’s still only growing 3%. What is happening there? And what can you do to fix security and benefit from this market growth? And then maybe I’ll ask my follow-up.
