Core Insights - Cisco Systems' networking revenues increased by 15% year-over-year to $7.77 billion in the first quarter of fiscal 2026, driven by strong demand for AI infrastructure and campus networking solutions [1][9] - The company anticipates a multi-year, multibillion-dollar refresh opportunity in campus networking as demand for next-gen solutions like smart switches and Wi-Fi 7 products grows [2] - Cisco expects to generate over $2 billion from high-performance networking products, supported by strategic partnerships and the launch of the Unified Edge platform [3][9] Networking Revenue Growth - Networking product orders grew in the high teens for the fifth consecutive quarter, indicating robust growth across hyperscale infrastructure, enterprise routing, campus switching, and industrial IoT [2] - The demand for next-gen solutions is expected to drive significant revenue growth in fiscal 2026 [2] Competitive Landscape - Cisco faces strong competition from Arista Networks and Hewlett Packard Enterprise in the networking domain [4] - Arista Networks is gaining traction in high-performance switching products, while Hewlett Packard Enterprise is focusing on AI and IoT to diversify its business [5][6] Stock Performance and Valuation - Cisco shares have appreciated 29.6% year-to-date, outperforming the broader Zacks Computer and Technology sector's return of 23.5% [7] - The stock is trading at a premium with a trailing 12-month price/book ratio of 6.42X compared to the industry average of 6.05X [11] Earnings Estimates - The Zacks Consensus Estimate for the second quarter of fiscal 2026 earnings is $1.01 per share, reflecting a 7.45% growth from the previous year [13]

Financial Data and Key Metrics Changes - Cisco reported Q1 revenue of $14.9 billion, an 8% increase year-over-year, with non-GAAP net income of $4 billion, up 9% [18][19] - Non-GAAP earnings per share (EPS) was $1, reflecting a 10% growth, indicating that earnings are growing faster than revenue [5][18] - Total annualized recurring revenue (ARR) reached $31.4 billion, a 5% increase, with product ARR growing by 7% [21] Business Line Data and Key Metrics Changes - Total product revenue was $11.1 billion, up 10%, while service revenue was $3.8 billion, up 2% year-over-year [19] - Networking product orders grew by 15%, driven by strong demand in service provider routing and AI infrastructure [19][22] - Security revenue declined by 2%, attributed to shifts towards cloud subscriptions and declines in prior-generation products [19][22] Market Data and Key Metrics Changes - Product orders increased by 13% year-over-year, with service provider and cloud orders up 45%, public sector orders up 12%, and enterprise orders up 4% [21] - Orders from the Americas grew by 16%, EMEA by 8%, and APJC by 13% [21] - AI infrastructure orders from hyperscalers totaled $1.3 billion in Q1, with expectations of $3 billion in revenue for fiscal year 2026 [9][24] Company Strategy and Development Direction - Cisco aims to capitalize on the growing demand for AI infrastructure, positioning itself as a key provider for secure networking solutions [6][11] - The company is focusing on multi-year refresh opportunities in its product lines, particularly in enterprise routing and campus networking [40][41] - Strategic partnerships, such as with G42 and NVIDIA, are being expanded to enhance AI capabilities and infrastructure [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a strong fiscal year 2026, driven by robust order growth and innovation [5][17] - The company anticipates challenges in the second half of the year due to tougher year-over-year comparisons [37] - Management highlighted the importance of modernizing network infrastructure to support AI workloads as a significant growth opportunity [15][41] Other Important Information - Cisco returned $3.6 billion to shareholders through dividends and share repurchases, representing 125% of free cash flow in Q1 [5][22] - The company expects non-GAAP gross margin for Q2 to be in the range of 67.5%-68.5% and for fiscal year 2026 to be between $60.2 billion-$61 billion in revenue [24] Q&A Session Summary Question: Insights on AI orders and their evolution - Management clarified that the $3 billion revenue expectation from Hyperscale AI infrastructure is based on new orders totaling $1.3 billion in Q1, with expectations for at least double the orders from fiscal year 2025 [27][28] Question: Strength in AI orders and DRAM pricing impact - Management noted that the scale-across opportunity is emerging, with significant growth in pluggable optics and a shift towards cloud subscriptions impacting security revenue [32][33] Question: Growth in the rest of the business - Management indicated that excluding Hyperscaler growth, the rest of the business saw a 9% increase in orders, addressing concerns about overall growth rates [37] Question: Multi-year cycles and confidence in growth - Management highlighted the ongoing refresh opportunities in enterprise routing and campus switches, indicating a strong interest from customers [40][41] Question: Silicon One penetration and security revenue shifts - Management expects Silicon One to be fully rolled out by the end of fiscal 2029, with a focus on performance and programmability driving traction among Hyperscalers [46][47]

Financial Data and Key Metrics Changes - Cisco reported Q1 revenue of $14.9 billion, an 8% increase year-over-year, with non-GAAP net income of $4 billion, up 9%, and non-GAAP earnings per share of $1, up 10% [5][18] - Non-GAAP gross margin was 68.1%, down 120 basis points year-over-year, while non-GAAP product gross margin was 67.2%, down 170 basis points [22] - Operating cash flow was $3.2 billion, down 12% due to investments in AI infrastructure [22] Business Line Data and Key Metrics Changes - Total product revenue was $11.1 billion, up 10%, with networking revenue growing 15%, driven by service provider routing and AI infrastructure [19] - Security revenue decreased by 2%, reflecting declines in prior-generation products and a shift to cloud subscriptions [20] - Collaboration revenue was down 3%, while observability revenue increased by 6% [20] Market Data and Key Metrics Changes - Product orders grew 13% year-over-year, with service provider and cloud orders up 45%, public sector orders up 12%, and enterprise orders up 4% [21] - Product orders were up across all geographic segments, with the Americas up 16%, EMEA up 8%, and APJC up 13% [21] Company Strategy and Development Direction - Cisco is focusing on AI infrastructure, with expectations to recognize approximately $3 billion in AI infrastructure revenue from hyperscalers in fiscal year 2026 [9] - The company is expanding partnerships, including with G42 in the UAE and NVIDIA, to enhance its AI capabilities [11][12] - Cisco aims to capture the multi-year refresh opportunity in networking products as older models reach end-of-support [40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for AI infrastructure and the critical role of secure networking as organizations deploy AI [6] - The company anticipates continued growth in AI-related orders and a robust pipeline exceeding $2 billion for NeoCloud and Sovereign Cloud [29][60] - Management acknowledged challenges in the security segment but remains committed to long-term growth targets [74] Other Important Information - Cisco returned $3.6 billion to shareholders through dividends and share repurchases, representing 125% of free cash flow in Q1 [5] - The company expects revenue for Q2 to be in the range of $15 billion to $15.2 billion and for fiscal year 2026 to be between $60.2 billion and $61 billion [24] Q&A Session Summary Question: Insights on AI orders and pipeline - Management clarified that the $3 billion AI revenue target for fiscal 2026 is based on hyperscale AI infrastructure, with expectations for at least double the orders received in fiscal year 2025 [27][28] Question: Impact of DRAM pricing on gross margin - Management noted tightening supply and significant price increases in memory, which are factored into the updated guidance for Q2 and the year [33] Question: Growth in the rest of the business - Management indicated that excluding hyperscaler growth, the rest of the business grew 9% in Q1 from an orders perspective [37] Question: Multi-year cycles and refresh opportunities - Management highlighted the ongoing refresh opportunities in enterprise routing and campus switches, with faster adoption rates than previous launches [40] Question: Silicon One penetration and traction - Management expects Silicon One to be fully rolled out across the portfolio by the end of fiscal 2029, emphasizing its performance and programmability [46] Question: Security revenue normalization - Management anticipates that the normalization of the security revenue mix will take about four quarters, with a commitment to mid-teens long-term growth [74]

Financial Data and Key Metrics Changes - Cisco reported Q1 revenue of $14.9 billion, an 8% increase year-over-year, with non-GAAP net income rising to $4 billion, up 9% [16][18] - Non-GAAP earnings per share (EPS) reached $1, reflecting a 10% growth, indicating that earnings are growing faster than revenue [16][18] - Total annualized recurring revenue (ARR) was $31.4 billion, a 5% increase, with product ARR growing by 7% [18] Business Line Data and Key Metrics Changes - Total product revenue was $11.1 billion, up 10%, while service revenue increased by 2% to $3.8 billion [17] - Networking products saw a significant growth of 15%, driven by service provider routing and AI infrastructure [17] - Security revenue declined by 2%, attributed to shifts towards cloud subscriptions and declines in prior-generation products [17][19] Market Data and Key Metrics Changes - Product orders grew by 13% year-over-year, with service provider and cloud orders up 45% [18] - Orders from the public sector increased by 12%, while enterprise orders rose by 4% [18] - Geographic performance showed the Americas up 16%, EMEA up 8%, and APJC up 13% in product orders [18] Company Strategy and Development Direction - Cisco is focusing on AI infrastructure and secure networking as critical growth areas, with expectations of $3 billion in AI infrastructure revenue from hyperscalers in FY2026 [8][21] - The company is expanding partnerships, including with G42 and NVIDIA, to enhance its AI capabilities and product offerings [10][11] - Cisco aims to capitalize on the multi-year refresh opportunity in networking products as older models reach end-of-support [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for AI-related products and the need for modern networking infrastructure to support AI initiatives [5][6] - The company anticipates continued growth in the second half of FY2026, driven by strategic investments and innovation [20][21] - Management acknowledged challenges in the supply chain, particularly regarding memory and optics, but remains optimistic about meeting demand [27][54] Other Important Information - Cisco returned $3.6 billion to shareholders through dividends and share repurchases, representing 125% of free cash flow in Q1 [4][19] - The company reported a non-GAAP gross margin of 68.1%, slightly down from the previous year but above guidance [19] - Total cash, cash equivalents, and investments at the end of Q1 were $15.7 billion [19] Q&A Session Summary Question: Insights on AI orders and WebScale opportunities - Management clarified that the $3 billion AI revenue target for FY2026 is based on existing customer orders, with expectations for at least double the orders from FY2025 [22][23] Question: Growth in enterprise orders and pipeline - The NeoCloud and Sovereign Cloud enterprise pipeline exceeds $2 billion, with $200 million booked in Q1, indicating strong future potential [23][24] Question: Impact of DRAM pricing on gross margin - Management acknowledged tightening supply and price increases in memory and optics but stated these factors are accounted for in their guidance [27][28] Question: Multi-year cycles and product refresh opportunities - Management highlighted the accelerated ramp of new products, indicating strong customer interest in modernizing network infrastructure [30] Question: Security revenue and future growth expectations - Management reiterated commitment to mid-teens long-term growth in security revenue, expecting normalization of the mix shift to take about four quarters [51][52]

Q1 Fiscal Year 2026 Conference Call November 12, 2025 Forward-Looking Statements This presentation contains projections and other forward-looking statements regarding future events or the future financial performance of Cisco, including future operating results. These projections and statements are only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements. Please see Cisco's filings with the SEC, including its most recent filing on For ...