Cisco Systems, Inc. (CSCO) Earnings & Analysis

Latest quarter

Cisco reported Q4 FY2026 revenue of $17.3 billion, up 17.6% from Q4 FY2025, and adjusted EPS of $1.22 as the consensus counts it. The company’s revenue exceeded the $16.9 billion consensus, while adjusted EPS exceeded the $1.17 consensus.

Cisco’s filing shows that product revenue rose 24% to $13.5 billion while services revenue was flat at $3.8 billion. The filing attributed product-category growth to Networking, up 28%, Security, up 14%, Collaboration, up 12%, and Observability, up 6%; it said Networking growth reflected AI infrastructure and data-center switching. Cisco reported diluted EPS of $0.97, up 36.6%, gross margin of 64.1%, up 0.9 percentage points, operating margin of 24.7%, up 3.7 percentage points, and free cash flow of $5.0 billion, up 24.4%. The filing attributed the gross-margin increase partly to favorable pricing and the absence of a prior-year supplier-dispute charge, partly offset by product mix and higher memory costs. Cisco’s $17.3 billion of revenue was above its Q4 FY2026 revenue guidance of $16.7 billion to $16.9 billion.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Chuck Robbins said total product orders rose 35% year over year in Q4, including 95% growth from service-provider and cloud customers, while enterprise product orders rose 21% and public-sector orders rose 30%. He said networking product orders grew 40%, supported by service-provider routing, optics, data-center switching, compute, campus networking, wireless and enterprise routing.

Robbins said Cisco took $4 billion in hyperscaler AI-infrastructure orders in Q4 and $9.3 billion in FY2026, and that four top hyperscalers each increased AI-infrastructure orders by triple digits. He said Cisco projects $7.5 billion of hyperscaler AI-infrastructure revenue in FY2027. Robbins also said the company received more than $400 million of AI-infrastructure orders from NeoCloud, sovereign-cloud and enterprise customers in Q4.

Patterson said Q4 non-GAAP gross margin was 66.3%, down 210 basis points year over year, with product gross margin affected by higher hardware mix and memory costs. In response to questions about the FY2027 outlook, Patterson said Cisco expects a slight gross-margin headwind as hardware becomes a larger part of revenue, while treating operating margin as its profitability indicator. He said Cisco is entering strategic supply agreements and does not see significant lead-time issues, adding that the company believes it has adequate supply for its FY2027 guide and for demand above it.

When analysts asked about security revenue, Patterson said Q4’s 14% growth included sizable, longer-duration on-premise deals and said Cisco expects security and observability to grow at a high-single-digit rate for FY2027. Patterson did not quantify those sizable on-premise deals. When analysts asked about pricing, Patterson said price increases contributed about five points to Q4 revenue growth and were directed toward hardware products with higher memory use; he said the company plans four to five points of pricing impact in FY2027.

Guidance

Cisco introduced Q1 FY2027 guidance for revenue of $18.0 billion to $18.2 billion, GAAP EPS of $1.08 to $1.10, non-GAAP gross margin of 65.0% to 66.0%, non-GAAP operating margin of 35.5% to 36.5%, and a non-GAAP tax rate of approximately 18.5%. Cisco’s FY2027 outlook calls for revenue of $72.2 billion to $73.4 billion, GAAP EPS of $4.00 to $4.06, non-GAAP EPS of $5.05 to $5.11, an operating margin of about 35.0%, hyperscaler AI-infrastructure revenue of $7.5 billion, a GAAP tax rate of approximately 14.5%, and a non-GAAP tax rate of approximately 18.5%.