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    CSCO
    Earnings call· Oct 2025(Q1 FY26)

    CISCO SYSTEMS, INC. CSCO

    Nov 12, 2025 Source

    Executive summary

    Cisco Q1 FY26 — Strong AI Infrastructure Demand and Record Q1 Revenue

    Cisco reported a strong start to FY26, exceeding revenue and EPS guidance, primarily driven by robust demand for AI infrastructure and a multi-year campus networking refresh cycle. The company is strategically investing in AI-native solutions and expanding partnerships to capitalize on the AI era, while navigating a temporary revenue impact from Splunk's cloud transition and managing gross margin pressures. Capital returns remain a priority, with significant value returned to shareholders.

    Highlights

    5

    • Q1 revenue and earnings per share both came in above the high end of guidance ranges, with total revenue up 8% year-over-year.

    • Non-GAAP EPS grew 10% year-over-year, demonstrating operating leverage.

    • Total product orders grew 13% year-over-year, with growth across all geographies and customer markets.

    • AI infrastructure orders from hyperscalers totaled $1.3 billion in Q1, balanced between Silicon One systems and optics.

    • Networking product orders accelerated to high teens growth, driven by hyperscale infrastructure, enterprise routing, campus switching, and wireless.

    Concerns

    3

    • Security revenue was down 2% year-over-year, reflecting declines in prior generation products and a shift to cloud subscriptions for Splunk.

    • Non-GAAP gross margin decreased 120 basis points year-over-year to 68.1%, driven by negative impacts from mix and pricing.

    • Operating cash flow was down 12% year-over-year to $3.2 billion due to investments to meet growing customer demand for AI infrastructure.

    Guidance & targets

    10
    CategoryTargetConfidence
    Q2 FY26 Revenue
    $15 billion to $15.2 billion
    high materiality
    High
    Q2 FY26 Non-GAAP Gross Margin
    67.5% to 68.5%
    medium materiality
    High
    Q2 FY26 Non-GAAP Operating Margin
    33.5% to 34.5%
    medium materiality
    High
    Q2 FY26 Non-GAAP Earnings Per Share
    $1.01 to $1.03
    high materiality
    High
    Q2 FY26 Non-GAAP Effective Tax Rate
    approximately 19%
    low materiality
    High
    FY26 Revenue
    $60.2 billion to $61 billion
    high materiality
    High
    FY26 Non-GAAP Earnings Per Share
    $4.08 to $4.14
    high materiality
    High
    FY26 AI Infrastructure Revenue from Hyperscalers
    roughly $3 billion
    high materiality
    High
    FY26 AI Orders from Hyperscalers
    at least 2x FY25 orders
    high materiality
    High
    AI Opportunity Ramp (Sovereign, Neocloud, Enterprise)
    ramp in the second half of fiscal year '26
    medium materiality
    Medium

    Segment performance

    13
    SegmentRevenueYoYQoQMargin
    Total Company
    Record Q1 revenue, above the high end of guidance.
    		$14.9 billion8%——
    Product
    Driven by robust demand for AI infrastructure and campus networking solutions.
    		$11.1 billion10%——
    Service
    		$3.8 billion2%——
    Networking
    Standout performance, led by AI infrastructure revenue and strength across the portfolio.
    Service Provider Routing growth: high double-digitData Center Switching growth: double-digitEnterprise Routing growth: double-digitCampus Switching growth: high single-digit
    		—15%——
    Security
    Reflects declines in prior generation products and a shift to cloud subscriptions in Splunk, partially offset by growth in Secure Firewall, Duo, and SASE.
    		—-2%——
    Collaboration
    Reflecting declines in devices and WebEx.
    		—-3%——
    Observability
    Primarily driven by growth in ThousandEyes.
    		—6%——
    Americas (Product Orders)
    Product orders were up across all geographic segments.
    		—16%——
    EMEA (Product Orders)
    Product orders were up across all geographic segments.
    		—8%——
    APJC (Product Orders)
    Product orders were up across all geographic segments.
    		—13%——
    Service Provider and Cloud (Product Orders)
    Product orders were up across all customer markets, driven by high double-digit order growth in hyperscalers.
    		—45%——
    Public Sector (Product Orders)
    Product orders were up across all customer markets, with growth across all geographies and cohorts, including U.S. Federal.
    		—12%——
    Enterprise (Product Orders)
    Product orders were up across all customer markets, on top of mid-teens growth excluding Splunk a year ago, with strength in campus switching and wireless solutions.
    		—4%——

    Operational metrics

    20
    Non-GAAP Net Income
    $4 billionup 9%
    Q1 FY26
    Non-GAAP EPS
    $1up 10%
    Q1 FY26
    Non-GAAP Gross Margin
    68.1%down 120 bps YoY
    Q1 FY26
    Non-GAAP Operating Margin
    34.4%
    Q1 FY26

    Above the high end of guidance range.

    Non-GAAP Tax Rate
    19%
    Q1 FY26
    Cash and investments balance
    $15.7 billion
    Q1 FY26 end

    Total cash, cash equivalents and investments.

    Capital Returned to Shareholders
    $3.6 billion125% of free cash flow
    Q1 FY26
    Share Repurchase Program Remaining Authorization
    $12.2 billion
    Q1 FY26 end
    Total Subscription Revenue
    $8 billion
    Q1 FY26
    Total Software Revenue
    $5.7 billionup 3%
    Q1 FY26
    Product Orders (normalized ex-hyperscaler)
    9%YoY
    Q1 FY26

    Growth for the rest of the business if hyperscaler growth is normalized out.

    Inventory plus Advanced Purchase Commitments
    up almost $1 billionQoQ
    Q1 FY26

    Reflects efforts to secure supply and inventory for accelerating demand.

    Splunk On-Prem Revenue Mix
    about 1/3vs. ~50% prior quarter
    Q1 FY26

    Shift to cloud subscriptions impacted revenue recognition timing.

    AI-related Pipeline (Sovereign, Neocloud, Enterprise)
    in excess of $2 billion
    next 3 quarters

    For high-performance networking products.

    AI-related Orders (Sovereign, Neocloud, Enterprise)
    $200 million
    Q1 FY26

    Booked in Q1 from this customer segment.

    Silicon One Chips Shipped
    1 millionth chip
    Q2 FY26

    Expected to ship in Q2 FY26.

    Next-Gen Security Products Customers
    Nearly 3,000
    since launch

    Customers who have purchased a new product from the refreshed security portfolio.

    Next-Gen Firewalls Demand
    mid-teens growth
    Q1 FY26
    Industrial IoT Orders
    more than 25%YoY
    Q1 FY26

    Driven by onshoring of manufacturing, AI workloads at the edge, and physical AI.

    Agentic AI Queries Network Traffic
    up to 25x morethan chatbots
    current

    Illustrates the increased network intensity of AI workloads.

    Industry KPIs

    9
    MetricValueDetails
    Capital return$3.6 billionUSD
    Backlog order book$42.9 billionUSD
    Orders backlog qualityup 13%%
    Product orders order growthup 13%%
    Ai cloud infrastructure orders$1.3 billionUSD
    Recurring software service revenue$42.9 billionUSD
    Revenue mix by product customer typeProduct revenue up 10%%
    Design wins product cycle transitionsAll hyperscalerscustomers
    Front end vs back end scale up vs scale across m—

    Orderbook & backlog

    9
    Total RPO$42.9 billionQ1 FY26 end

    up 7%

    Product RPOup 10%Q1 FY26 end
    Long-term Product RPO$11.8 billionQ1 FY26 end

    up 13%

    Total ARR$31.4 billionQ1 FY26 end

    up 5%

    Product ARRup 7%Q1 FY26 end
    Total Product Ordersup 13%Q1 FY26

    YoY

    AI Infrastructure Orders from Hyperscalers$1.3 billionQ1 FY26

    Balanced between Silicon One systems and optics.

    Splunk ARRgrew double digitsQ1 FY26
    Splunk Product RPOgrew double digitsQ1 FY26

    Product announcements

    4
    ProductTypeDetails
    Cisco 8223 Routerlaunch
    Cisco Unified Edgelaunch
    Cisco Data Fabriclaunch
    NVIDIA N9100 Switchlaunch

    Deals & partnerships

    2
    G42 (UAE)Expansion of partnership to power, connect, and secure G42's large-scale AI clusters featuring AMD GPUs.

    Other strategic partnerships in the region, including HUMAIN and Stargate UAE, are also progressing.

    NVIDIAExpansion of partnership, including the new N9100 switch based on Spectrum-X silicon and new capabilities for Cisco Secure AI factory.

    Cisco is the first NVIDIA partner to offer networking compliant with their cloud reference architecture. N9100 available in H2 FY26.

    Risks & headwinds

    5
    Security revenue decline due to product transition and Splunk cloud shiftQ1 FY26, expected to normalize over ~4 quarters

    Security revenue down 2% YoY in Q1 FY26

    Mitigation: Focus on new and refreshed security products, long-term benefits of cloud subscriptions for Splunk, and continued commitment to mid-teens long-term growth.

    Non-GAAP gross margin pressureQ1 FY26

    Down 120 bps YoY to 68.1% in Q1 FY26

    Mitigation: Driven by negative impacts from mix and pricing, partially offset by productivity improvements. Included in Q2 and FY26 guidance.

    Operating cash flow reduction due to AI investmentsQ1 FY26

    Down 12% YoY to $3.2 billion in Q1 FY26

    Mitigation: Investments made to meet growing customer demand for AI infrastructure, viewed as strategic for future growth.

    Tougher year-over-year comparisons in second half of FY26H2 FY26

    Q3 and Q4 FY25 comps were +11% and +8% on top line

    Mitigation: Management acknowledges this in guidance, focusing on durable growth with financial discipline.

    Supply chain tightening and DRAM pricingCurrent

    DRAM pricing significantly elevated, tightening of supply in memory, PCB, and optics

    Mitigation: Included and considered in updated guidance for Q2 and FY26. Company is making advanced purchase commitments and securing supply.

    What to watch in Q2 FY26

    5

    AI Infrastructure Orders from Hyperscalers

    Next quarter and full FY26
    Current$1.3 billion in Q1 FY26
    TargetContinued strong growth towards 2x FY25 orders for FY26

    Why it matters

    This is a key driver of Cisco's growth and investment thesis, indicating sustained demand for AI infrastructure.

    What we expect from an orders perspective this year is that we will -- we're expecting at least 2x the orders that we received in fiscal year '25 from that same set of customers.

    Q&A highlights

    6

    Clarification on the $3 billion AI revenue target for FY26 and the diversity of hyperscaler opportunities, as well as the progression of the $2 billion enterprise AI pipeline.

    Chuck Robbins clarified the $3 billion is a revenue target for FY26 from hyperscaler AI infrastructure. He stated Q1 AI orders from hyperscalers were $1.3 billion, and they expect at least 2x FY25 orders from the same customers in FY26. He noted the expansion into scale-across opportunities with new products and the $2 billion enterprise AI pipeline is for the next three quarters, with $200 million booked in Q1.

    “What we expect from an orders perspective this year is that we will -- we're expecting at least 2x the orders that we received in fiscal year '25 from that same set of customers.”

    asked by Aaron Rakers · answered by Charles Robbins

    2 min read6 chapters

    Detailed Narrative

    01

    AI Infrastructure Demand and Opportunity

    Cisco is experiencing robust demand for its AI infrastructure, with Q1 hyperscaler AI orders totaling $1.3 billion, contributing to an expected $3 billion in AI infrastructure revenue for FY26. The company anticipates at least double the AI orders from hyperscalers in FY26 compared to FY25. Cisco is expanding its AI offerings, including the new 51.2 Tbps Silicon One P200-based router for scale-across opportunities and market-leading Acacia coherent pluggable optics, now adopted by all major hyperscalers. A growing pipeline exceeding $2 billion for high-performance networking products across sovereign, Neocloud, and enterprise customers is expected to ramp in H2 FY26.

    02

    Campus Networking Refresh Cycle

    Cisco is seeing strong demand for its campus networking portfolio, including switching, routing, and wireless products, indicating enterprise investment in AI-ready connectivity. New product launches, such as the Catalyst 9K series, smart switches, secure routers, and Wi-Fi 7 products, are ramping faster than prior generations, signaling the beginning of a multi-year, multi-billion-dollar refresh opportunity. This trend is driven by the end-of-support for older equipment (Cat4K, Cat6K) and the increasing need for integrated security in the network to support agentic workflows.

    03

    Splunk Integration and Cloud Transition

    Splunk's ARR and product RPO grew double digits in Q1, with a notable shift towards cloud subscriptions and fewer on-premise deals. While this transition negatively impacted security revenue growth in Q1 due to revenue recognition timing, management views it as positive for long-term adoption, expansion, and faster innovation delivery. The company expects the mix shift to stabilize over approximately four quarters, with no material impact on the overall FY26 guidance.

    04

    Security Portfolio Evolution

    Cisco's security segment saw a 2% revenue decline in Q1, primarily due to the Splunk cloud transition and declines in prior-generation products, partially offset by growth in Secure Firewall, Duo, and SASE. New and refreshed security products, comprising about one-third of the portfolio (Secure Access, XDR, Hypershield, AI Defense), are gaining traction with nearly 3,000 customers and mid-teens growth in next-generation firewall demand. The company remains committed to its mid-teens long-term revenue growth target for security, expecting acceleration through the year.

    05

    Unified Edge and Data Fabric Innovations

    Cisco introduced Unified Edge, an industry-first converged platform integrating compute, networking, and storage for real-time inferencing of Agentic and physical AI workloads at the network edge. This innovation addresses the need for AI models and infrastructure closer to data creation, particularly in industries like retail, healthcare, and manufacturing. Additionally, Cisco Data Fabric, a Splunk-powered architecture, was announced to unify and manage machine data for AI model building, reinforcing Cisco's platform advantage.

    06

    Capital Allocation and Shareholder Returns

    Cisco returned $3.6 billion to shareholders in Q1, representing 125% of free cash flow, through $1.6 billion in quarterly cash dividends and $2 billion in share repurchases. The company has $12.2 billion remaining under its share repurchase program. This strong capital allocation reflects solid margins and cash flows, positioning the business for continued shareholder value creation while making strategic investments in innovation.

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