Cisco outlines $59B–$60B revenue target for FY26 with AI infrastructure as major growth driver

Earnings Call Insights: Cisco Systems (CSCO) Q4 2025

Management View

• CEO Charles H. Robbins highlighted a strong finish to fiscal 2025, with revenue and gross margin at the high end of guidance and earnings per share above the guidance range. Robbins stated, “We had a strong close to fiscal ’25, delivering revenue and gross margin at the high end of our guidance ranges for the fourth quarter. Continued operating leverage across our business produced strong profitability with earnings per share above the high end of our guidance.”
• Robbins emphasized robust growth in annualized recurring revenue, remaining performance obligations, and subscription revenue, adding, “In Q4, we returned $2.9 billion in capital to our shareholders through share repurchases and dividends bringing the total return in fiscal ’25 to $12.4 billion in value or 94% of free cash flow, surpassing the $12.1 billion Cisco returned to shareholders in fiscal ’24.”
• AI infrastructure demand surged, with record orders from webscale customers exceeding $800 million in Q4 and totaling over $2 billion for fiscal 2025, surpassing the previously stated $1 billion target. Robbins noted, “These orders exceeded $800 million in the quarter, bringing the total for fiscal year ’25 to over $2 billion, more than double our original $1 billion target stated in Q4 of fiscal year ’24.”
• Networking product orders grew double digits for the fourth consecutive quarter, and new smart switches powered by Silicon One are expected to trigger a major multiyear refresh cycle. Industrial IoT portfolio orders grew double digits for the fifth consecutive quarter.
• Strategic partnerships and innovation were highlighted, including completed integrations with NVIDIA and new strategic partnerships in the Middle East, such as HUMAIN, G42, and Stargate UAE.
• Robbins acknowledged Scott Herren’s retirement and welcomed Mark Patterson as CFO.
• CFO Mark Patterson stated, “We delivered a strong quarter with revenue and non-GAAP gross margin and operating margin at the high end of our guidance range and earnings per share above the high end of our guidance, coupled with solid operating cash flow. For the quarter, total revenue was $14.7 billion, up 8% year-over-year. Non-GAAP net income was $4 billion, up 12% and non-GAAP earnings per share was $0.99, up 14%, demonstrating good operating leverage with EPS growth outpacing revenue growth.”

Outlook

• Fiscal Q1 2026 guidance: revenue expected between $14.65 billion and $14.85 billion; non-GAAP gross margin between 67.5% and 68.5%; non-GAAP operating margin between 33% and 34%; non-GAAP EPS from $0.97 to $0.99.
• Fiscal year 2026 guidance: revenue projected at $59 billion to $60 billion; non-GAAP EPS in the range of $4 to $4.06.
• Management indicated guidance assumes current tariffs and exemptions remain in place through fiscal 2026. Robbins stated, “Our FY ’25 performance has established a solid foundation as we turn our focus to delivering Cisco’s strongest year yet in fiscal year ’26 as indicated in our guidance.”

Financial Results

• Total revenue for Q4 was $14.7 billion, up 8% year-over-year. Total product revenue reached $10.9 billion, a 10% increase, while services revenue was $3.8 billion, flat year-over-year.
• Networking revenue grew 12% with particular strength in internet infrastructure and enterprise routing. Security revenue increased 9%, driven by Splunk and SASE offerings. Collaboration and observability were up 2% and 4%, respectively.
• Total RPO was $43.5 billion, up 6%, and total ARR reached $31.1 billion, up 5%.
• Q4 product orders increased 7% year-over-year, with strong performance in Americas, EMEA, and APJC. Service provider and cloud orders surged 49%; enterprise rose 5%; public sector declined 6%.
• Non-GAAP gross margin for the quarter was 68.4%, up 50 basis points. Operating cash flow was $4.2 billion.
• For the full year, revenue totaled $56.7 billion, up 5% from the prior year. Operating cash flow for the year was $14.2 billion.

Q&A

• Aaron Christopher Rakers, Wells Fargo, asked about guidance and AI opportunity deceleration. Robbins explained, “The annual progression is really related to comps.”
• Meta Marshall, Morgan Stanley, questioned growth in security and CFO priorities. Robbins indicated optimism for security, especially in new and refreshed products, citing 20%+ order growth for those lines. Patterson noted a focus on “durable profitable growth, obviously, financial discipline and transparency.”
• Simon Leopold, Raymond James, raised concerns about order pull-forward. Robbins stated, “I haven’t heard one instance in the last 6 months of a single customer who said, ‘I’m going to order this now before price increases occur.'” Patterson provided supporting data indicating no signs of broad-based pull-forward.
• Samik Chatterjee, JPMorgan, inquired about the sustainability of networking growth. Robbins reiterated confidence in maintaining the previously stated medium-term range.
• Michael Ng, Goldman Sachs, asked about AI order-to-revenue conversion. Patterson said, “For the full year, we recognized right about $1 billion in revenue related to those.”
• Amit Daryanani, Evercore, asked about AI enterprise adoption and revenue contribution. Robbins said, “We saw a few hundred million dollars that move through, and we have hundreds of millions in the pipeline right now for enterprise.”
• Tal Liani, BofA Securities, focused on service revenue trends and sustainability of networking growth. Patterson expects services revenue to improve as ratable revenue follows product growth. Robbins does not see AI as a fleeting trend.
• Ben Reitzes, Melius Research, asked about security targets and AI partnerships. Robbins reaffirmed long-term targets for security and observability and confirmed tight partnerships with both NVIDIA and AMD.

Sentiment Analysis

• Analyst sentiment was probing and cautious, with repeated questions on the sustainability of AI-driven growth, risk of order pull-forwards, and security growth trajectory. Several analysts expressed skepticism about the durability of recent gains.
• Management maintained a confident and optimistic tone in both prepared remarks and Q&A, frequently referencing strong order growth, innovation, and strategic opportunities. Robbins used phrases like “we feel really good about it” and “I feel good about where we are” when discussing future positioning.
• Compared to the previous quarter, management’s tone remained optimistic but was slightly more specific in addressing growth drivers and risk factors, while analysts pressed more on guidance consistency and the AI revenue ramp.

Quarter-over-Quarter Comparison

• Guidance for fiscal year 2026 was introduced, projecting higher revenue than in the previous quarter’s guidance for fiscal 2025.
• The prior quarter highlighted strong AI order momentum, but this quarter emphasized actual AI infrastructure orders surpassing targets and the translation of these orders into recognized revenue.
• The transition to Mark Patterson as CFO was completed, following the previously announced retirement of Scott Herren.
• Analysts in both quarters focused on the sustainability of AI demand and the impact of macroeconomic and geopolitical factors, but this quarter saw greater emphasis on the conversion of orders to revenue and the composition of growth by segment.
• Management’s confidence in the AI opportunity and networking refresh cycle continued, with more detail provided on revenue recognition and product adoption in Q4.

Risks and Concerns

• Management cited a “complex environment” and ongoing tariff uncertainties, with guidance assuming current tariffs and exemptions remain stable.
• Analysts pressed on the risk of order pull-forward, the durability of AI-driven demand, and the pace of enterprise AI adoption.
• Robbins acknowledged that public sector orders declined and noted that campus product adoption may take time to ramp.
• Patterson stated, “We will continue to leverage our world-class supply chain team to help mitigate the impact of tariffs where appropriate.”

Final Takeaway

Cisco’s fiscal 2025 closed with strong growth in revenue, profitability, and AI infrastructure orders, with the company signaling confidence in achieving $59 billion to $60 billion in revenue for fiscal 2026. Management highlighted robust momentum in AI, networking refresh cycles, and recurring revenue streams, while also addressing potential risks related to tariffs, public sector demand, and order timing. The transition to a new CFO and continued innovation in partnership with industry leaders position the company to pursue durable growth opportunities in the coming year.

Read the full Earnings Call Transcript