Why did Cisco's net profit plummet in Q4 2024?

Cisco's net profit declined from $3.6 billion to $2.7 billion, a decrease of approximately 25% from the same quarter the previous year. This significant drop in net profit can be attributed to several key factors: 1. **Revenue Decline**: Cisco experienced a 5% drop in total revenue, with a 9% decline in product revenue and a 6% increase in services revenue compared to the same quarter the previous year. This decline in revenue, particularly in product sales, contributes directly to the decrease in net profit. 2. **Operating Expenses Increase**: Despite the revenue decline, operating expenses rose by 15% to $5.8 billion. This increase, primarily due to higher R&D, sales, and marketing, and general and administrative expenses, squeezed the net profit margin. 3. **Pricing Erosion**: There was a pricing erosion, which affected the product gross margin. However, the company managed to increase the product gross margin by 0.6 percentage points, thanks to a favorable product mix and productivity improvements. In summary, Cisco's net profit plummeted in Q4 2024 due to a combination of revenue decline, increased operating expenses, and pricing erosion. These factors, collectively, put pressure on the company's profitability, resulting in a significant drop in net profit.