Cisco Systems Inc Earnings - Q3 2025 Analysis & Highlights

Key Takeaways

Cisco Systems Inc. (CSCO) Q1 2026 earnings call highlighted strong financial results, driven by robust demand for AI infrastructure and campus networking solutions, with a focus on growth opportunities in AI, security, and network modernization. The company is optimistic about its future performance, providing financial guidance for Q2 and fiscal year 2026.

Key Financial Results

  • Q1 2026 revenue was $14.9 billion, up 8% year-over-year.
  • Non-GAAP net income reached $4 billion, a 9% increase.
  • Non-GAAP earnings per share (EPS) grew by 10% to $1.
  • The company returned $3.6 billion to shareholders through dividends and share repurchases, representing 125% of free cash flow in Q1.
  • Total RPO was $42.9 billion, up 7%.
  • Total ARR ended the quarter at $31.4 billion, an increase of 5% with product ARR growth of 7%.
  • Total subscription revenue was $8 billion, representing 54% of Cisco's total revenue.
  • Total software revenue was up 3% to $5.7 billion.
  • Q1 product orders were up 13% year-over-year.
  • Non-GAAP gross margin came in at 68.1%.
  • Non-GAAP operating margin at 34.4%.
  • Operating cash flow was $3.2 billion, down 12% due to investments to meet growing customer demand for AI infrastructure.

    • Business Segment Results

  • Product revenue was $11.1 billion, up 10%.
  • Service revenue was $3.8 billion, up 2%.
  • Networking was a standout with growth of 15%.
  • Security was down 2%, reflecting declines in prior-generation products and a shift to cloud subscriptions in the Splunk business.
  • Collaboration was down 3%, reflecting declines in devices and Webex.
  • Observability was up 6%, primarily driven by growth in ThousandEyes.
  • Product orders were up across all geographic segments, with the Americas up 16%, EMEA up 8%, and APJC up 13%.
  • Product orders were also up across all customer markets with service provider and cloud up 45%, public sector up 12%, and enterprise up 4%.

    • Capital Allocation

  • Returned $3.6 billion to shareholders during the quarter.
  • $1.6 billion for quarterly cash dividend.
  • $2 billion of share repurchases, with $12.2 billion remaining under the share repurchase program.

    • Industry Trends and Dynamics

  • Strong demand for AI infrastructure and campus networking solutions.
  • Customers are modernizing their network infrastructure in the enterprise in preparation for inferencing and AI workloads.
  • AI workloads require models and infrastructure to be closer to where data is created and decisions are made.
  • Growing demand for AI infrastructure across sovereign, neocloud, and enterprise customers.
  • Customers are shifting to more cloud subscriptions for Splunk offerings.

    • Competitive Landscape

  • Cisco is the first NVIDIA partner to offer networking compliant with their cloud reference architecture.
  • The company's new switching platforms enable security to be fused deeply into the network.
  • Customers realize they will have to be applying security policies in the network as the traffic moves.
  • The company believes there will be multiple GPU providers and wants to participate as a connectivity layer across as many of those as possible.

    • Macroeconomic Environment

  • The Q2 and fiscal year 2026 guide assumes current tariffs and exemptions remain in place through the end of fiscal 2026, with the exception of the China fentanyl tariff being reduced from 20% to 10%.
  • Tightening of supply across memory, as well as PCB and optics.
  • Significant price increases in memory.

    • Growth Opportunities and Strategies

  • Cisco is focused on durable growth with financial discipline, driving operating leverage and continued capital returns.
  • The company is making strategic investments in innovation to capitalize on the significant growth opportunities they see ahead.
  • Cisco is building AI-ready data centers, powering future-proof workplaces, and creating a foundation of digital resilience.
  • The company is expanding its partnership with G42 in the UAE to power, connect and secure G42's large-scale AI clusters featuring AMD GPUs.
  • Cisco launched its sovereign critical infrastructure portfolio for European customers to operate in their own air-gapped, on-prem physical environments.
  • The company announced an expansion of its NVIDIA partnership and its new N9100 switch based on Spectrum-X silicon.
  • Cisco is delivering new capabilities and features for Cisco Secure AI factory with NVIDIA.
  • The company introduced Cisco Unified Edge, an industry-first converged platform for the network edge, integrating compute, networking and storage into a single system.
  • Cisco announced Cisco Data Fabric, a Splunk-powered architecture to unify and manage machine data across various sources.
  • The company expects to ship its 1 millionth Silicon One chip in Q2 of fiscal year 2026.
  • Cisco expects its AI opportunity across sovereign, neocloud and enterprise customers to ramp in the second half of fiscal year 2026.

    • Financial Guidance and Outlook

  • For fiscal Q2, revenue is expected to be in the range of $15 billion to $15.2 billion.
  • Non-GAAP gross margin is anticipated to be in the range of 67.5% to 68.5%.
  • 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 $1.01 to $1.03.
  • The company is assuming a non-GAAP effective tax rate of approximately 19%.
  • For fiscal year 2026, revenue is expected to be in the range of $60.2 billion to $61 billion.
  • Non-GAAP earnings per share is expected to range from $4.08 to $4.14.
  • Cisco expects to recognize roughly $3 billion in AI infrastructure revenue from hyperscalers in fiscal year 2026.