Cisco posts quarterly gross margin below estimates, shares fall

Core Viewpoint - Cisco Systems reported a quarterly adjusted gross margin that fell below market estimates, primarily due to the impact of rising global memory prices, resulting in a 7% drop in shares during premarket trading [1] Group 1: Financial Performance - Cisco's adjusted gross margin for the second quarter was 67.5%, which was lower than the analysts' average estimate of 68.14% [3] - The company reported total revenue of $15.35 billion for the quarter ended January 24, exceeding analysts' average estimate of $15.12 billion [7] Group 2: Market Dynamics - The surge in demand for artificial intelligence infrastructure from U.S. tech firms has significantly consumed the global memory chip supply, leading to increased prices as manufacturers focus on higher-margin data centers [2] - Cisco provides essential networking infrastructure, including switches and routers, that supports data centers running AI applications [2] Group 3: Strategic Responses - In response to rising memory prices, Cisco has raised its own prices and is revising contractual terms with partners and customers, as stated by CEO Chuck Robbins [4] - The company anticipates AI orders exceeding $5 billion and expects to recognize over $3 billion in AI infrastructure revenue from hyperscalers in fiscal year 2026 [5] Group 4: Future Outlook - Cisco has updated its revenue forecast for 2026 to between $61.2 billion and $61.7 billion, an increase from the previous forecast of $60.2 billion to $61 billion [5] - Strong demand and accelerating revenue are seen as positives for Cisco, although compressed margins are a concern for the second half of the year [3]