Cisco Systems Inc (CSCO) Q4 2025 Earnings Call Highlights: Strong Revenue Growth and AI Momentum

Total Revenue: $14.7 billion, up 8% year over year. Non-GAAP Net Income: $4 billion, up 12% year over year. Non-GAAP Earnings Per Share: $0.99, up 14% year over year. Total Product Revenue: $10.9 billion, up 10% year over year. Services Revenue: $3.8 billion, flat year over year. Networking Revenue: Up 12%, with double-digit growth in Internet infrastructure and enterprise routing. Security Revenue: Up 9%, driven by growth in Splunk and SASE offerings. Collaboration Revenue: Up 2%, driven by growth in devices. Observability Revenue: Up 4%, led by growth in Splunk and ThousandEyes. Total RPO: $43.5 billion, up 6% year over year. Total ARR: $31.1 billion, up 5% year over year. Operating Cash Flow: $4.2 billion, up 14% year over year. Capital Returned to Shareholders: $2.9 billion in Q4, $12.4 billion for fiscal year 2025. Non-GAAP Gross Margin: 68.4%, up 50 basis points year over year. Non-GAAP Operating Margin: 34.3%, at the high end of guidance range.

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Release Date: August 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Cisco Systems Inc (NASDAQ:CSCO) delivered revenue and gross margin at the high end of guidance ranges for Q4, with earnings per share above expectations. The company generated solid growth in annualized recurring revenue, remaining performance obligations, and subscription revenue, providing a strong foundation for future performance. AI infrastructure orders from web-scale customers exceeded $800 million in Q4, bringing the total for fiscal year '25 to over $2 billion, more than double the original target. Product orders from service provider and cloud customers were up 49% year over year, driven by triple-digit order growth in web scale for the fourth consecutive quarter. Cisco Systems Inc (NASDAQ:CSCO) returned $2.9 billion in capital to shareholders in Q4 through share repurchases and dividends, totaling $12.4 billion for fiscal '25, or 94% of free cash flow.

Negative Points

Public sector orders were down 6% year over year in Q4, compared to a strong fourth quarter in FY24. Services revenue was flat year over year at $3.8 billion, indicating a deceleration in growth over the past five quarters. Security orders, excluding U.S. Federal, showed slower growth, with the need for acceleration to meet long-term growth targets. Concerns were raised about potential pull-forward of orders due to budget cuts and tariff implications, although Cisco Systems Inc (NASDAQ:CSCO) did not find significant evidence of this. The guidance for fiscal year 2026 suggests a deceleration in growth, with revenue expected to be in the range of $59 billion to $60 billion, reflecting potential conservatism.

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Q & A Highlights

Q: Given the AI opportunity and the guidance for fiscal year 2026, does the projected deceleration in growth reflect conservatism or a change in demand? A: Charles Robbins, CEO, explained that the deceleration is related to year-over-year comparisons and not a change in demand. He noted that the campus refresh cycle, particularly with the Cat 9K, is expected to kick in next year, contributing to growth.

Q: How is Cisco viewing the growth outlook for its security business, especially with new and old products? A: Charles Robbins, CEO, expressed optimism about the security segment, highlighting over 20% order growth in new and refreshed products like Cisco XDR and Hypershield. He noted that excluding US Federal, security orders grew double digits, and he expects growth rates to improve throughout the fiscal year.

Q: Is there a risk of order pull-forward due to potential budget cuts or tariff concerns, particularly in the federal vertical? A: Charles Robbins, CEO, and Mark Patterson, CFO, both indicated that they have not seen evidence of significant order pull-forward. They monitor various metrics and have not observed any unusual patterns that would suggest customers are accelerating orders due to external factors.

Q: Can you discuss the AI business composition and expectations for the systems and optics split? A: Charles Robbins, CEO, stated that the current two-thirds systems and one-third optics split in AI infrastructure orders is expected to remain steady. He emphasized the strong demand from cloud providers and the potential for enterprise AI adoption to grow.

Q: How does Cisco view the sustainability of networking growth, particularly with the cloud and AI spending trends? A: Charles Robbins, CEO, believes that AI will drive network modernization across various segments, including cloud providers and enterprises. He highlighted the upcoming campus refresh cycle and the significant installed base of older products as opportunities for sustained growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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