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CISCO SYSTEMS, INC. (CSCO)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 revenue $14.9B (+8% y/y) and non-GAAP EPS $1.00 (+10% y/y) came in above the high end of guidance; GAAP EPS was $0.72 (+6% y/y), with GAAP/Non-GAAP operating margins of 22.6%/34.4% .
  • Results beat Wall Street consensus: revenue $14.883B vs $14.779B* and non-GAAP EPS $1.00 vs $0.982*; initial Q2 consensus (revenue $15.115B*, EPS $1.021*) is broadly aligned with Q2 guidance ($15.0–$15.2B; $1.01–$1.03) .
  • FY26 guidance raised: revenue to $60.2–$61.0B (from $59.0–$60.0B) and non-GAAP EPS to $4.08–$4.14 (from $4.00–$4.06); tax rate assumptions updated (FY GAAP ~17%, non-GAAP ~19%) .
  • AI momentum continues: $1.3B hyperscaler AI infrastructure orders in Q1 and ~$3B FY26 hyperscaler AI revenue expected, plus a multi-year, multi-billion-dollar campus refresh ramping across switching, routing, wireless and IoT .

Values marked with * in this report are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Product orders up 13% y/y, with double-digit networking orders growth for the fifth consecutive quarter; management emphasized a multi-year, multi-billion-dollar campus networking refresh driven by Cat9K upgrades and Wi‑Fi 7 ramp .
  • Margins and operating leverage: non-GAAP gross margin 68.1% and non-GAAP operating margin 34.4%, both above guidance; “we continue to grow earnings faster than revenue” (CFO) .
  • Strong AI traction: $1.3B hyperscaler AI orders in Q1, coherent pluggable optics demand across all hyperscalers, and expectation of ~$3B FY26 hyperscaler AI revenue .

What Went Wrong

  • Security revenue down 2% y/y amid a mix shift at Splunk from on‑prem to cloud subscriptions, depressing near-term revenue recognition despite double‑digit ARR and product RPO growth; management views this as timing rather than demand weakness .
  • Non‑GAAP product gross margin down 170 bps y/y and total non‑GAAP gross margin down 120 bps y/y, reflecting adverse mix/pricing, partly offset by productivity .
  • Operating cash flow fell 12% y/y to $3.2B due to investments to meet AI demand; memory/PCB/optics supply tightened and DRAM prices rose, with impacts contemplated in guidance .

Financial Results

Headline Metrics

MetricQ3 FY 2025Q4 FY 2025Q1 FY 2026
Revenue ($USD Billions)$14.149 $14.673 $14.883
GAAP EPS ($)$0.62 $0.71 $0.72
Non-GAAP EPS ($)$0.96 $0.99 $1.00
GAAP Gross Margin %65.6% 65.7% 65.5%
Non-GAAP Gross Margin %68.6% 68.4% 68.1%
GAAP Operating Margin %22.6% 23.5% 22.6%
Non-GAAP Operating Margin %34.5% 34.3% 34.4%

Segment Breakdown

Segment Revenue ($USD Millions)Q3 FY 2025Q4 FY 2025Q1 FY 2026
Networking$7,068 (8% y/y) $7,633 (12% y/y) $7,768 (15% y/y)
Security$2,013 (54% y/y) $1,952 (9% y/y) $1,980 (-2% y/y)
Collaboration$1,031 (4% y/y) $1,042 (2% y/y) $1,055 (-3% y/y)
Observability$261 (24% y/y) $259 (4% y/y) $274 (6% y/y)
Total Product$10,374 (15% y/y) $10,886 (10% y/y) $11,077 (10% y/y)
Services$3,775 (3% y/y) $3,787 (—) $3,806 (2% y/y)
Total$14,149 (11% y/y) $14,673 (8% y/y) $14,883 (8% y/y)

Geographic Revenue

Geography Revenue ($USD Millions)Q3 FY 2025Q4 FY 2025Q1 FY 2026
Americas$8,380 (14% y/y) $8,822 (9% y/y) $8,989 (9% y/y)
EMEA$3,736 (8% y/y) $3,645 (4% y/y) $3,784 (5% y/y)
APJC$2,034 (9% y/y) $2,206 (7% y/y) $2,111 (5% y/y)
Total$14,149 (11% y/y) $14,673 (8% y/y) $14,883 (8% y/y)

KPIs and Cash Flow

KPIQ3 FY 2025Q4 FY 2025Q1 FY 2026
Product Orders YoY %+20% (ex Splunk +9%) +7% +13%
Total RPO ($B)$41.7 (+7% y/y) $43.5 (+6% y/y) $42.9 (+7% y/y)
Product LT RPO ($B)——$11.8 (+13% y/y)
Operating Cash Flow ($B)$4.1 $4.2 $3.2
Dividend per Share ($)$0.41 (paid Jul 23, 2025) $0.41 (paid Oct 22, 2025) $0.41 (to be paid Jan 21, 2026)
Capital Returned ($B)$3.1 $2.9 $3.6
Subscription Revenue ($B, % of total)——$8.0 (54%)
Total Software Revenue ($B)——$5.7 (+3% y/y)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)FY 2026$59.0–$60.0 $60.2–$61.0 Raised
Non-GAAP EPS ($)FY 2026$4.00–$4.06 $4.08–$4.14 Raised
GAAP EPS ($)FY 2026$2.79–$2.91 $2.87–$2.98 Raised
GAAP Tax Rate AssumptionFY 2026~18% ~17% Lowered
Non-GAAP Tax Rate AssumptionFY 2026~19% ~19% Maintained
Revenue ($B)Q2 FY 2026—$15.0–$15.2 New
Non-GAAP GM %Q2 FY 2026—67.5%–68.5% New
Non-GAAP OM %Q2 FY 2026—33.5%–34.5% New
Non-GAAP EPS ($)Q2 FY 2026—$1.01–$1.03 New
GAAP EPS ($)Q2 FY 2026—$0.69–$0.74 New
DividendQ1 FY 2026$0.41 declared $0.41 declared (paid 1/21/26) Maintained

Note: Guidance includes estimated tariff impacts; GAAP-to-non-GAAP reconciliation provided in the release .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25)Previous Mentions (Q4 FY25)Current Period (Q1 FY26)Trend
AI infrastructure (hyperscalers)$600M orders; momentum building >$800M Q4 orders; FY25 >$2B total $1.3B Q1 orders; ~$3B FY26 revenue expected Accelerating
Campus refreshModernization narrative building Continued strength in networking Multi-year, multi-billion refresh; Cat9K, Wi‑Fi 7 ramp faster than prior cycles Strengthening
Security/Splunk mixStrong Security growth (+54% y/y) Security +9% y/y Security -2% y/y; Splunk cloud shift depresses near-term revenue; double-digit ARR/RPO Transition to cloud (temporary revenue headwind)
Margins and cost inputsGM stable; OM above guidance GM at high end; OM strong Non-GAAP GM -120 bps y/y; DRAM/PCB/optics supply tightness; impacts in guide Mixed; input costs pressuring product GM
Public sector/governmentBroad-based demand U.S. Fed grew high-single-digit orders despite shutdown Public sector strength outside U.S. (EMEA/APJC mid-to-upper teens orders) Resilient globally
Optics——Coherent pluggables across all hyperscalers; strong DCI/inside-DC demand Expanding
Sovereign/NeoCloud pipeline——>$2B pipeline; not in FY26 guide; export licenses pending Building; H2 ramp expected

Management Commentary

  • CEO: “We delivered record Q1 revenue… the critical role of secure networking… as customers move quickly to unlock the potential of AI.”
  • CEO on campus: “All… product families are ramping faster than historical launches… indicates customers are aggressively modernizing for inferencing and AI” .
  • CEO on AI optics: “All of the Hyperscalers now are officially customers of our pluggable optics” .
  • CFO: “Non-GAAP earnings per share was $1, up 10%, demonstrating continuing operating leverage… non-GAAP operating margin at 34.4%, above the high end of our guidance range” .
  • CFO on supply/costs: “Tightening of supply… significant price increases [DRAM]… included and considered in our updated guide” .

Q&A Highlights

  • AI revenue/orders clarity: ~$3B FY26 hyperscaler AI revenue; Q1 hyperscaler AI orders $1.3B; expect ≥2x AI orders vs FY25 for same hyperscaler cohort .
  • Enterprise/sovereign pipeline: >$2B pipeline for NeoCloud/Sovereign/Enterprise; ~$200M booked in Q1; not included in ≥2x hyperscaler orders or in FY26 guide; export licensing gating near-term .
  • Margins/input costs: DRAM/PCB/optics supply tightness and higher memory prices incorporated into Q2 and FY26 guide .
  • Security trajectory: Near-term revenue headwind from Splunk cloud shift; management reiterates mid-teens long-term growth aspiration and expects normalization over ~4 quarters .
  • Capacity/commitments: Inventory plus AP commitments up ~$1B q/q and ~38% y/y to secure AI supply for hyperscalers .

Estimates Context

Q1 FY26 Actual vs Consensus

MetricConsensus*Actual
Non-GAAP EPS ($)0.982*1.00
Revenue ($USD)14,779,937,990*14,883,000,000

Values retrieved from S&P Global.

Q2 FY26 Guidance vs Consensus

MetricConsensus*Guidance
Non-GAAP EPS ($)1.021*1.01–1.03
Revenue ($USD)15,115,119,830*15,000,000,000–15,200,000,000

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Solid beat and raised FY guide: CSCO exceeded top/bottom-line guidance and raised FY26 revenue/EPS ranges, indicating confidence in demand durability across AI and campus refresh cycles .
  • AI is the principal growth engine: $1.3B Q1 hyperscaler AI orders and ~$3B FY26 hyperscaler AI revenue expected; coherent pluggable optics adopted by all hyperscalers, broadening TAM and mix .
  • Networking strength offsets security normalization: Double-digit networking growth across service provider routing, DC switching and enterprise routing, while Security faces near-term mix headwinds from cloud shifts at Splunk (timing issue) .
  • Watch margin mix and input costs: Product GM pressure from mix/pricing and tighter DRAM/PCB/optics supply is embedded in guidance; non-GAAP OM remains strong, driven by operating discipline .
  • Recurring base expanding: RPO up 7% and long-term product RPO up 13%; subscription revenue 54% of total and software revenue up, underscoring revenue visibility into FY26 .
  • Public sector/global demand resilient: Strength outside the U.S. in EMEA/APJC public sector orders; potential upside as government refreshes pre‑Cat9K and end‑of‑support gear for cybersecurity hygiene .
  • Near-term trading lens: Focus on AI order flow, optics attach, and campus refresh ramps versus margin mix; Security revenue headwinds likely transient as cloud subscriptions normalize over ~4 quarters .

Appendix: Selected Additional Financial Tables

Non-GAAP EPS Reconciliation

Item ($ per share)Q1 FY 2025Q1 FY 2026
GAAP EPS0.68 0.72
Share-based comp0.20 0.26
Amortization of intangibles0.15 0.12
Acquisition/divestiture costs0.08 0.03
Asset impairments/restructurings0.17 0.04
(Gains)/losses on investments(0.02) (0.05)
Tax effects & significant tax matters(0.33) (0.10)
Non-GAAP EPS0.91 1.00