Cisco Systems Inc Earnings - Q4 2025 Analysis & Highlights
Cisco Systems Inc. (CSCO) reported a strong Q2 fiscal year 2026 with double-digit growth in revenue and EPS, driven by robust demand for AI infrastructure and campus networking solutions. The company also announced an increase in its dividend and provided optimistic guidance for Q3 and the full fiscal year 2026.
Key Financial Results
Total revenue for Q2 fiscal year 2026 was $15.3 billion, an increase of 10% year-over-year.
Product revenue was $11.6 billion, up 14% year-over-year.
Non-GAAP net income was $4.1 billion, up 10%.
Non-GAAP earnings per share (EPS) was $1.04, an 11% increase, demonstrating continued operating leverage.
Total product orders grew 18% year-over-year in Q2.
Non-GAAP gross margin was 67.5%, down 120 basis points year-over-year.
Non-GAAP operating margin was 34.6%, exceeding the high end of the guidance range.
Total Recurring Offerings (RPO) was $43.4 billion, up 5%.
Total Annual Recurring Revenue (ARR) ended the quarter at $31 billion, an increase of 3%.
Total subscription revenue was $7.8 billion, representing 51% of Cisco's total revenue.
Total software revenue was $5.7 billion, up 2%.
Business Segment Results
Networking revenue grew 21%, driven by AI infrastructure and campus refresh.
Double-digit growth was observed in campus switching, data center switching, wireless, service provider routing, enterprise routing, and compute.
Security revenue was down 4%, due to declines in prior generation products and the transition of the Splunk business from on-premise deals to cloud subscriptions.
Collaboration revenue grew 6%, led by double-digit growth in devices, and growth in CPaaS, Webex, and Cloud Contact Center.
Product orders were up double-digits across all geographic segments: Americas up 23%, EMEA up 11%, and APJC up 15%.
Product orders were also up across all customer markets: service provider and cloud up 65%, public sector up 11%, and enterprise up 8%.
Capital Allocation
Cisco returned $3 billion in capital to shareholders during the quarter.
This included $1.6 billion for the quarterly cash dividend and $1.4 billion in share repurchases.
$10.8 billion remains under the share repurchase program.
The company announced an increase in its dividend by $0.01 to $0.42 per quarter.
This dividend increase demonstrates a commitment to returning a minimum of 50% of free cash flow annually to shareholders.
Operating cash flow was $1.8 billion, down 19%, due to a $2.3 billion final transition tax payment and investments in AI infrastructure.
Industry Trends and Dynamics
Strong demand was observed for AI infrastructure and campus networking solutions.
AI infrastructure orders from hyperscalers totaled $2.1 billion in Q2, compared to $1.3 billion last quarter.
Industrial IoT portfolio has grown double-digits for seven consecutive quarters, driven by onshoring of manufacturing, increase of AI workloads at the network edge, and the emergence of physical AI.
Significant increases in memory prices across the market are impacting gross margins.
Customers are increasingly concerned about privacy, data governance, and regulatory compliance with AI adoption.
Growth in new and refreshed security products is offset by a decline in prior generation security products.
A shift from on-premise deals to cloud subscriptions in the Splunk business is creating a drag on revenue growth.
Competitive Landscape
Cisco's industry-leading networking portfolio powered by Silicon One, AI-native security solutions, and operating systems positions it well for the AI era.
Cisco's operating scale and industry-leading position help negotiate favorable terms and secure supply amidst memory price increases.
The company believes it can manage the industry-wide dynamic of memory price increases better than its peers.
Silicon One's programmability allows it to adapt to a wide range of use cases and network infrastructure designs.
Acacia reported its strongest quarter-to-date with triple-digit growth in bookings, with hyperscalers deploying its coherent pluggable optics.
Cisco is positioned in an exclusive group of silicon providers delivering over 100 terabits per second switching speeds with its 102.4 terabit per second G300 chip.
Growth Opportunities and Strategies
Cisco is on track to deliver its strongest year yet.
The company is proactively implementing three key strategies to manage memory price increases: announcing price increases, revising contractual terms with partners and customers, and leveraging its operating scale to negotiate favorable terms and secure supply.
AI infrastructure orders are expected to exceed $5 billion and AI infrastructure revenue from hyperscalers is expected to be over $3 billion in fiscal year 2026.
Cisco has a separate AI opportunity across neocloud, sovereign, and enterprise customers, with $350 million in AI orders from these customers in Q2 and a growing pipeline exceeding $2.5 billion.
A joint venture with AMD and HUMAIN is planned to deliver up to 1 gigawatt of AI infrastructure by 2030, with operations beginning this calendar year and 100 megawatts planned for Saudi Arabia in Phase 1.
Strong interest is seen from European customers in sovereign critical infrastructure portfolio for air-gapped, on-prem environments.
New and refreshed security products, including Secure Access, XDR, Hypershield, AI Defense, and refreshed firewalls, are seeing order growth.
Secure Access booked over 2.5 million users in Q2, with over 50% of added customers being new logos.
Cisco is accelerating innovation across its offerings for and with AI, including AI defense and SASE advancements.
AI Defense can now scan models and repositories for vulnerabilities and provide an AI bill of materials.
Cisco SASE launched a new semantic inspection engine to evaluate agentic interactions and block context-dependent threats.
AgenticOps is being developed as the operating model for AI-driven IT for autonomous troubleshooting, continuous optimization, and trusted validation.
AI agents are being deployed within product dashboards, AI Assistants, and AI Canvas.
Internal AI advancements include AI coding assistance for product developers and AI and automation for over 90% of customer experience support cases.
The campus networking portfolio is seeing strong demand for next-generation switching, routing, and wireless products, which are ramping faster than prior launches.
The multi-year, multi-billion dollar refresh opportunity for Cisco is underpinned by AI-native capabilities and an installed base of early catalyst generations nearing end of support.
Financial Guidance and Outlook
For fiscal Q3, revenue is expected to be in the range of $15.4 billion to $15.6 billion.
Non-GAAP gross margin is anticipated to be in the range of 65.5% to 66.5%.
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 $1.02 to $1.04.
A non-GAAP effective tax rate of approximately 19% is assumed.
For fiscal year 2026, revenue is expected to be in the range of $61.2 billion to $61.7 billion.
Non-GAAP earnings per share is expected to range from $4.13 to $4.17.
The guidance assumes current tariffs and exemptions remain in place through the end of fiscal year 2026.
Cisco is positioned for its strongest year ever.
The company will continue to focus on durable growth, financial discipline, operating leverage, and continued capital returns.
