Cisco Systems Inc (CSCO) Q1 2026 Earnings Call Highlights: Record Revenue and Strategic AI ...

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Total Revenue: $14.9 billion, up 8% year over year. Non-GAAP Net Income: $4 billion, up 9% year over year. Non-GAAP Earnings Per Share (EPS): $1, up 10% year over year. Total Product Revenue: $11.1 billion, up 10% year over year. Service Revenue: $3.8 billion, up 2% year over year. Networking Revenue Growth: 15%, led by high double-digit growth in service provider routing. Security Revenue: Down 2%, impacted by a shift to cloud subscriptions in the Splunk business. Collaboration Revenue: Down 3%, due to declines in devices and WebEx. Observability Revenue: Up 6%, driven by growth in ThousandEyes. Total RPO (Remaining Performance Obligations): $42.9 billion, up 7% year over year. Total ARR (Annualized Recurring Revenue): $31.4 billion, up 5% year over year. Total Software Revenue: $5.7 billion, up 3% year over year. Non-GAAP Gross Margin: 68.1%, down 120 basis points year over year. Operating Cash Flow: $3.2 billion, down 12% year over year. Capital Returned to Shareholders: $3.6 billion, including $1.6 billion in dividends and $2 billion in share repurchases.

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Release Date: November 12, 2025

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

Positive Points

Cisco Systems Inc (NASDAQ:CSCO) reported record Q1 revenue, with an 8% year-over-year increase, driven by strong demand for AI infrastructure and campus networking solutions. The company achieved a 10% growth in non-GAAP EPS, indicating effective cost management and operational efficiency. Cisco Systems Inc (NASDAQ:CSCO) returned $3.6 billion to shareholders through dividends and share repurchases, representing 125% of free cash flow in Q1. Product orders grew 13% year over year, with significant growth across all geographies and customer markets, particularly in service provider and cloud sectors. The company is well-positioned to capitalize on AI infrastructure opportunities, with a strong pipeline and strategic partnerships, including an expanded partnership with NVIDIA.

Negative Points

Security revenue declined by 2% due to a shift to cloud subscriptions in the Splunk business and declines in prior generation products. Non-GAAP gross margin decreased by 120 basis points year over year, impacted by mix and pricing challenges. Operating cash flow was down 12% due to investments to meet growing customer demand for AI infrastructure. The transition to cloud subscriptions for Splunk negatively impacted security revenue growth in Q1, although it is expected to be a timing issue. There are concerns about the sustainability of growth in non-AI segments, with some analysts questioning the overall growth rate excluding AI-related revenues.

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Q & A Highlights

Q: How has Cisco's engagement in the web scale vertical evolved, and what is the outlook for AI orders? A: Chuck Robbins, CEO, clarified that the $3 billion figure is a revenue target from hyperscale AI infrastructure for fiscal '26. Cisco expects to double the orders from fiscal '25, with a strong pipeline and expanding use cases. The enterprise pipeline exceeds $2 billion for the fiscal year, providing additional opportunities.

Q: Is the strength in AI orders due to scale across opportunities or deepening engagements? Also, how is Cisco handling DRAM pricing impacts? A: Chuck Robbins noted that most Q1 growth was from deepening existing use cases, with scale across opportunities emerging. Mark Patterson, CFO, added that DRAM pricing increases and supply constraints are factored into Cisco's guidance for Q2 and the fiscal year.

Q: Why is the rest of Cisco's business growing only 3.6% despite strong AI sales? A: Chuck Robbins explained that excluding hyperscaler growth, the rest of the business grew 9% in orders. Mark Patterson highlighted that tougher comparisons in the second half of the year affect growth rates.

Q: Can you elaborate on the multiyear nature of Cisco's product cycles and what drives this confidence? A: Chuck Robbins emphasized the rapid adoption of new products like enterprise routing and Wi-Fi 7, driven by end-of-support cycles and AI preparation. The faster ramp of these products compared to historical launches indicates strong customer interest.

Q: What is the penetration of Silicon One in Cisco's portfolio, and why is it gaining traction with hyperscalers? A: Chuck Robbins stated that Silicon One will be fully integrated across the portfolio by fiscal '29. Its performance, programmability, and low power consumption, along with custom engagements, are key factors in its success with hyperscalers.

Q: How is Cisco addressing the shift to cloud in its Splunk business, and what impact does it have on security revenue? A: Chuck Robbins noted a significant shift to cloud subscriptions, which, while impacting short-term revenue, is positive for long-term adoption and innovation. Mark Patterson added that despite timing issues, Splunk's ARR and RPO grew double digits, indicating strong demand.

Q: What drives the faster ramp of next-gen solutions in the campus market, and how does it relate to government customers? A: Chuck Robbins attributed the faster ramp to end-of-life cycles, AI preparation, and integrated security. Government customers, particularly in the federal sector, are under pressure to update equipment for cybersecurity reasons, which could drive further demand.

Q: How does Cisco view the current AI build-out compared to the late '90s Internet build-out? A: Chuck Robbins highlighted the faster pace and stronger financial backing of current AI investments compared to the dot-com era. The concentration of spend from profitable companies and the existential nature of AI investments differentiate it from past cycles.

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

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