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    CSCO
    Earnings call· Jan 2026(Q2 FY26)

    CISCO SYSTEMS Q2 FY26 earnings call CSCO

    Feb 11, 2026 Source

    Executive summary

    Cisco Q2 FY26 — AI Infrastructure and Campus Networking Drive Double-Digit Growth

    Cisco delivered a strong Q2 FY26, with double-digit revenue and EPS growth driven by robust demand for AI infrastructure and Campus networking solutions. The company raised its full-year AI orders and revenue expectations, signaling continued momentum in this critical area. Despite gross margin pressures from memory costs and a revenue drag from the Splunk cloud transition, Cisco demonstrated operating leverage and increased its dividend, reinforcing its commitment to shareholder returns and strategic investments in innovation.

    Highlights

    5

    • Total revenue grew 10% YoY to $15.3 billion, exceeding the high end of guidance ranges.

    • Product revenue increased 14% YoY, driven by robust demand for AI infrastructure and Campus networking solutions.

    • Non-GAAP EPS grew 11% YoY to $1.04, demonstrating operating leverage by growing faster than revenue.

    • Total product orders grew 18% YoY, with AI infrastructure orders from hyperscalers totaling $2.1 billion in Q2 FY26.

    • Dividend increased by $0.01 to $0.42 per quarter, reaffirming commitment to returning a minimum of 50% of free cash flow annually.

    Concerns

    3

    • Non-GAAP gross margin declined 120 basis points YoY to 67.5%, primarily due to negative impacts from mix and higher memory costs.

    • Security revenue was down 4% YoY, reflecting declines in prior-generation products and the transition of Splunk from on-prem deals to cloud subscriptions.

    • Operating cash flow was down 19% YoY to $1.8 billion, impacted by a $2.3 billion transition tax payment and continued investments in AI infrastructure.

    Guidance & targets

    14
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $15.4 billion to $15.6 billion
    high materiality
    High
    Q3 FY26 Non-GAAP Gross Margin
    65.5% to 66.5%
    medium materiality
    High
    Q3 FY26 Non-GAAP Operating Margin
    33.5% to 34.5%
    medium materiality
    High
    Q3 FY26 Non-GAAP Earnings Per Share
    $1.02 to $1.04
    high materiality
    High
    Q3 FY26 Non-GAAP Effective Tax Rate
    approximately 19%
    low materiality
    High
    FY26 Revenue
    $61.2 billion to $61.7 billion
    high materiality
    High
    FY26 Non-GAAP Earnings Per Share
    $4.13 to $4.17
    high materiality
    High
    FY26 AI Orders
    in excess of $5 billion
    high materiality
    High
    FY26 AI Infrastructure Revenue from Hyperscalers
    over $3 billion
    high materiality
    High
    Quarterly Dividend
    $0.42 per quarter
    high materiality
    High
    Annual Free Cash Flow Return to Shareholders
    minimum of 50%
    high materiality
    High
    Sovereign AI Impact
    not meaningful
    low materiality
    Medium
    Neocloud AI Ramp
    begin in the second half, but really be FY '27
    low materiality
    Medium
    Organic Cisco Security Portfolio Revenue Growth
    close to double digits
    medium materiality
    Medium

    Segment performance

    10
    SegmentRevenueYoYQoQMargin
    Networking (Product Revenue)
    Driven by AI infrastructure and campus refresh. Saw double-digit growth across multiple sub-segments.
    Campus switching: Double-digit growthData center switching: Double-digit growthWireless: Double-digit growthService provider routing: Double-digit growthEnterprise routing: Double-digit growthCompute: Double-digit growth
    		$11.6B21%——
    Security
    Reflects similar dynamics as last quarter with declines in prior generation products and the transition in Splunk business from on-prem to cloud subscriptions, partially offset by growth in new and refreshed products.
    		—-4%——
    Collaboration
    Posted solid growth, led by devices.
    Devices: Double-digit growthCPaaS: GrowthWebex: GrowthCloud Contact Center: Growth
    		—6%——
    Americas (Product Orders)
    Product orders were up double digits across all geographic segments.
    		—23%——
    EMEA (Product Orders)
    Product orders were up double digits across all geographic segments.
    		—11%——
    APJC (Product Orders)
    Product orders were up double digits across all geographic segments.
    		—15%——
    Service Provider and Cloud (Product Orders)
    Accelerated in Q2, driven by triple-digit order growth across hyperscalers.
    		—65%——
    Public Sector (Product Orders)
    Double-digit growth across all geographies.
    		—11%——
    Enterprise (Product Orders)
    Strength across the entire networking portfolio.
    		—8%——
    Telco and Cable (Product Orders)
    Combined growth in Q2.
    		—almost 20%——

    Operational metrics

    26
    Total Revenue
    $15.3B+10% YoY
    Q2 FY26

    Exceeded the high end of guidance ranges.

    Non-GAAP Net Income
    $4.1B+10% YoY
    Q2 FY26

    Demonstrating continuing operating leverage.

    Non-GAAP Earnings Per Share
    $1.04+11% YoY
    Q2 FY26

    Grew faster than revenue.

    Product Revenue
    $11.6B+14% YoY
    Q2 FY26

    Driven by robust demand for AI infrastructure and Campus networking solutions.

    Services Revenue
    $3.7B-1% YoY
    Q2 FY26

    Year-over-year decline.

    Non-GAAP Gross Margin
    67.5%-120 bps YoY
    Q2 FY26

    Impacted by mix and higher memory costs.

    Non-GAAP Product Gross Margin
    66.4%-130 bps YoY
    Q2 FY26

    Primarily driven by negative impacts from mix and higher memory costs, partially offset by productivity improvements.

    Non-GAAP Services Gross Margin
    70.9%-70 bps YoY
    Q2 FY26

    Year-over-year decline.

    Non-GAAP Operating Margin
    34.6%
    Q2 FY26

    Above the high end of guidance range, highest in 4 quarters.

    Non-GAAP Tax Rate
    19%
    Q2 FY26

    For the quarter.

    Cash, Cash Equivalents and Investments
    $15.8B
    End of Q2 FY26

    Total balance.

    Capital Returned to Shareholders
    $3B
    Q2 FY26

    Total capital returned during the quarter.

    Capital Returned to Shareholders YTD
    $6.6B
    YTD FY26

    Total value returned year-to-date.

    Remaining Share Repurchase Authorization
    $10.8B
    End of Q2 FY26

    Remaining under the share repurchase program.

    Advanced Purchase Commitments
    $1.8B+73% YoY
    Last 90 days

    Increase in advanced purchase commitments, with a big chunk around memory.

    AI Orders from Neocloud, Sovereign, Enterprise
    $350M
    Q2 FY26

    Orders taken from these customer segments.

    AI Pipeline from Neocloud, Sovereign, Enterprise
    In excess of $2.5B
    Q2 FY26

    Growing pipeline for high-performance AI infrastructure portfolio.

    Security New/Refreshed Products New Customers
    1,000+100% QoQ
    Q2 FY26

    New customers for products like Secure Access, XDR, Hypershield, AI Defense, and refreshed firewalls (excluding refreshed firewalls for this count).

    Security New/Refreshed Products Total New Customers
    ~4,000
    Since launch

    Total net new customers since launch for new and refreshed security products.

    Firewalls Ordered Growth
    Double-digit growth
    3 consecutive quarters

    Consistent growth in the number of firewalls ordered.

    Secure Access Users Booked
    Over 2.5M
    Q2 FY26

    Booked users for Secure Access.

    Secure Access New Logos
    >50%
    Q2 FY26

    Percentage of added customers that were new logos for Secure Access.

    Splunk New Logos
    500
    H1 FY26

    New customers acquired by Splunk in the first half of the fiscal year.

    Wi-Fi 7 Orders
    80%Sequentially
    Q2 FY26

    Sequential growth in Wi-Fi 7 orders.

    Silicon One Chips Shipped
    1 millionth chip
    Q2 FY26

    Milestone reached for Silicon One chip shipments.

    Acacia Bookings Growth
    Triple-digit growth
    Q2 FY26

    Acacia reported its strongest quarter to date in bookings.

    Industry KPIs

    10
    MetricValueDetails
    Capital return$0.42USD
    Backlog order book$43.4BUSD
    Orders backlog quality—
    Product orders order growth18%%
    Ai cloud infrastructure orders$2.1BUSD
    Recurring software service revenue$31BUSD
    Revenue mix by product customer type—
    Deferred revenue purchase commitments$1.8BUSD
    Design wins product cycle transitions—
    Front end vs back end scale up vs scale across m—

    Orderbook & backlog

    8
    Total RPO$43.4BEnd of Q2 FY26

    +5% YoY

    Product RPOGrew 8%End of Q2 FY26

    YoY

    Long-term Product RPO$11.8BEnd of Q2 FY26

    +11% YoY

    Total ARR$31BEnd of Q2 FY26

    +3% YoY

    Product ARRGrew 6%End of Q2 FY26

    YoY

    Total Product OrdersUp 18%Q2 FY26

    YoY

    Even on top of double-digit growth in Q2 FY25.

    Product Orders (excluding hyperscalers)Up 10%Q2 FY26

    YoY

    Demonstrating broad-based demand.

    AI Infrastructure Orders from Hyperscalers$2.1BQ2 FY26

    vs $1.3B last quarter; equal to total FY25 orders

    Marking another significant acceleration in growth.

    Product announcements

    6
    ProductTypeDetails
    G300 Chiplaunch
    G300 Powered Systems (Cisco 8000 and Nexus 9000)launch
    Pluggable Optics (1.6T OSFP and 800G LPO)launch
    AI Defense Advancementsupdate
    SASE Advancements (Semantic Inspection Engine)update
    AgenticOpslaunch

    Deals & partnerships

    1
    AMD and HUMAINJVby 2030

    Plans to form a joint venture to deliver up to 1 gigawatt of AI infrastructure by 2030, with Phase 1 building out 100 megawatts in Saudi Arabia.

    Capital programs

    1
    Joint Venture with AMD and HUMAIN for AI InfrastructureannouncedUp to 1 gigawatt of AI infrastructure

    Benefit: 1 gigawatt of AI infrastructure

    This joint venture expects to begin operations this calendar year with a plan to build out 100 megawatts in Saudi Arabia as Phase 1 of the project.

    Risks & headwinds

    4
    Significant increases in memory prices across the marketOngoing

    Contributed to non-GAAP product gross margin decline of 130 bps YoY.

    Mitigation: Implementing price increases, revising contractual terms with channel partners and customers, leveraging operating scale and supply chain to negotiate favorable terms and secure supply.

    Revenue drag from Splunk's transition to cloud subscriptionsExpected to continue in the second half of fiscal year '26.

    Creating a drag on revenue growth.

    Mitigation: Focusing on greater adoption, expansion, and faster delivery of innovation through cloud subscriptions, which is seen as a positive long-term transition.

    Decline in prior generation security productsOngoing

    Offsetting growth in new and refreshed products, contributing to Security revenue being down 4% YoY.

    Mitigation: Focusing on new and refreshed products (Secure Access, XDR, Hypershield, AI Defense) which are seeing strong customer adoption and sequential growth.

    Lower operating cash flow due to tax payment and investmentsQ2 FY26

    Operating cash flow down 19% YoY to $1.8 billion.

    Mitigation: Primarily due to the final transition tax payment of $2.3 billion from the 2017 Tax Cuts and Jobs Act and continued strategic investments to meet growing overall demand, especially for AI infrastructure.

    Q&A highlights

    7

    What is the mix between Silicon One and Optics in the AI orders, and will new products like G300/P200 open new markets? Also, is the Q3 gross margin decline primarily memory-related and expected to trough?

    Chuck clarified that the $5 billion FY26 AI target does not include G300/P200, and the Q2 mix was 60% systems, 40% optics. New products will deepen existing relationships and gain traction with neoclouds/sovereign. Mark confirmed Q3 gross margin decline is due to mix and memory prices, with mitigation strategies (price increases, T&Cs, supply chain) expected to improve timing.

    “P200 and G300 are not in the $5 billion expected for fiscal '26.”

    asked by Amit Daryanani · answered by Charles Robbins

    3 min read6 chapters

    Detailed Narrative

    01

    AI Infrastructure Momentum

    Cisco is experiencing significant acceleration in AI infrastructure demand, particularly from hyperscalers, with Q2 FY26 orders reaching $2.1 billion, surpassing the total for all of FY25. The company has raised its FY26 AI orders forecast to over $5 billion and revenue to over $3 billion, driven by its Silicon One architecture, new G300 chip, and advanced pluggable optics. This growth is supported by new design wins, including 3 new use cases in Q2 (1 Optics, 2 systems), and increasing capacity for 800-gig optics, positioning Cisco for the broadest range of AI deployments.

    02

    Campus Networking Refresh Cycle

    The company is seeing strong demand for its next-generation Campus networking products, including switching, routing, and wireless, with these transitions ramping faster than previous product launches. This multi-year, multi-billion-dollar refresh opportunity is underpinned by an installed base of older catalyst generations nearing end-of-support and the need for AI-native security and modernized operational stacks. Enterprise data center switching has shown double-digit order growth in 6 of the last 8 quarters, indicating meaningful investment in private data centers to support new applications.

    03

    Security Portfolio Evolution

    Cisco's security segment is undergoing a transition, with new and refreshed products like Secure Access, XDR, Hypershield, and AI Defense gaining traction, evidenced by over 1,000 new customers in Q2 FY26 (100% sequential growth) and ~4,000 total since launch. Refreshed firewalls have also seen three consecutive quarters of double-digit unit growth. However, this growth is currently offset by declines in prior-generation products and the revenue drag from Splunk's shift to cloud subscriptions. The organic security portfolio is expected to approach double-digit revenue growth by the end of Q4 FY26.

    04

    Memory Price Headwinds and Mitigation

    Cisco is facing industry-wide increases in memory prices, which contributed to a 130 basis point YoY decline in non-GAAP product gross margin. To mitigate this, the company has implemented price increases, is revising contractual terms with partners and customers, and is leveraging its operating scale and supply chain to negotiate favorable terms and secure supply. Management believes these actions, combined with financial discipline, will help manage the impact, and customers generally understand the industry-wide nature of these price adjustments.

    05

    Splunk Cloud Transition

    The integration of Splunk continues to see a shift towards cloud subscriptions and fewer on-premise deals, creating a short-term revenue drag due to accounting treatment. Despite this, the company views the transition positively, as cloud subscriptions enable greater adoption, expansion, and faster innovation delivery. Splunk added 500 new logos in the first half of FY26 and is on track to add 1,000 new logos for the full fiscal year, indicating continued customer acquisition and strategic alignment.

    06

    Strategic Partnerships and JV

    Cisco is actively developing strategic partnerships to capture AI opportunities beyond hyperscalers, including neocloud, sovereign, and enterprise customers. A joint venture with AMD and HUMAIN is planned to deliver up to 1 gigawatt of AI infrastructure by 2030, starting with 100 megawatts in Saudi Arabia in calendar year 2024. The company also noted a 70% sequential increase in engagements with NVIDIA, indicating early success in leveraging their combined strengths in AI infrastructure.

    AI-generated summary of the company’s earnings call. Not investment advice.