Cisco (CSCO) Q4 FY26 earnings call: guidance and Q&A

The FY27 revenue guide implies 15% growth (10% ex-AI), significantly higher than the long-term model. What drives the durability of this growth, and is this the peak of the cycle? Also, details on the $7.5 billion AI revenue target, scale-across opportunity, and multi-rail solutions.

Chuck emphasized the networking super cycle, enabled by Cisco's integrated stack (systems, silicon, optics, security, observability) across hyperscalers, telcos, and enterprises preparing for AI, Mythos, and quantum. He noted the 14x traffic increase for AI-based scale-across, highlighting P200 wins, Acacia optics, and upcoming multi-rail systems as key drivers.

“I think this super cycle is really -- it's enabled because we uniquely have our systems, our silicon, our optics, security, observability and really being able to integrate that into a stack for our customers.”

asked by Amit Daryanani · answered by Charles Robbins

Why are gross margins contracting in Q1 and for FY27? Is the networking revenue guidance conservative given strong order patterns?

Mark explained that gross margin headwinds are due to a higher hardware mix in the networking super cycle, but operating margin (guided at 35% for FY27) is a better indicator of profitability. He noted that hyperscaler growth, while lower gross margin, is highly profitable on an operating basis due to minimal incremental expenses. For networking revenue, he cited tougher year-over-year comparisons in the second half of FY27 and typical Q1 linearity.

“You should expect a slight gross margin headwind as we move through FY '27 as we address these very high-growth opportunities. And operating margin is really a better indicator of our profitability as our guide implies operating margin of about 35% for the full year FY '27, which would be a high watermark for us as a company.”

asked by Benjamin Reitzes · answered by Mark Patterson

What is driving the 14% year-over-year pickup in the security business? How are enterprise customers evolving their on-premise to cloud decisions, specifically regarding cost, security, or data sovereignty?

Mark stated that the security business has 'turned the corner,' with Q4 benefiting from some sizable, longer-duration on-prem Splunk deals, though he expects high single-digit growth for FY27. Chuck clarified that enterprise decisions are driven by a combination of cost, security, and data sovereignty, as customers navigate various AI models and agentic applications. Cisco believes it benefits regardless of whether customers deploy on-prem or in the cloud.

“What I think we've done is we've really turned the corner on security, I think, and Splunk both, meaning that the trend line will be good.”

asked by Meta Marshall · answered by Mark Patterson

The implied Q1 growth suggests deceleration in subsequent quarters for FY27. How does the $7.5 billion AI revenue target linearize throughout the year? What is Cisco's supply chain status, particularly regarding inventory growth, purchase obligations, and the direct relationship with TSMC?

Mark attributed the implied slowdown to prudence, tougher comps, and typical Q1 linearity. He expects the $7.5 billion AI hyperscale revenue to show gradual increases from Q1 through Q4. On supply, he stated no significant lead time issues, emphasizing Cisco's financial strength, strategic agreements, and direct engagement with TSMC for silicon, which provides control over supply and innovation.

“I think the big thing is we're really leaning into our financial strength. We feel like we've got a world-class supply chain team, and they've been voted as such actually for a number of years. And we really do not have any significant lead time issues that we're seeing unlike we've heard a number of different peers talk about.”

asked by Aaron Rakers · answered by Mark Patterson

Given $9.3 billion in AI orders in FY26, the $7.5 billion AI revenue target for FY27 seems conservative. Is this due to delivery timing, long lead times, or supply chain? What is the impact of price increases on non-AI networking, and how are customers reacting?

Mark clarified that $4 billion in AI revenue was recognized in FY26 against $9.3 billion in orders, noting that these are large, nonlinear orders placed well in advance, making $7.5 billion a prudent FY27 revenue guide. He stated that price increases contributed about 5 points to Q4 revenue growth and are expected to contribute 4-5 points in FY27. These are single-digit, hardware-specific increases, and customers, while not liking them, understand they reflect industry-wide issues.

“I would just tell you that price increases are certainly a last resort for us. I mean, we're doing everything we can to secure the right supply at the right prices and build up strategic inventory where needed and advance purchase commitments.”

asked by David Vogt · answered by Mark Patterson

With broad-based IT stack investment and an inflationary environment, are enterprise customer budgets increasing or getting stretched? What are customers communicating?

Chuck explained that enterprise customers recognize the rapid technological transition and the risk of pausing investments. They are reprioritizing within existing budgets and increasingly view AI readiness, Mythos readiness, and quantum readiness as non-optional, similar to cybersecurity spend. This is creating a fundamental shift of dollars from other organizational areas to IT, with a building pipeline for Mythos-driven network refreshes often viewed as cybersecurity spend.

“I think most of our enterprise customers today, they recognize that we are in the midst of probably the fastest-moving technology transition that we've ever seen.”

asked by Joseph Cardoso · answered by Charles Robbins