0000858877-25-000171
SEC filingCisco's Q1 FY26 revenue grew 8% YoY to $14.88B, driven by Networking strength, with operating margin expanding 5.6 pts to 22.6%.
Cisco delivered a strong first quarter of fiscal 2026, with total revenue of $14.88 billion, up 8% year-over-year. The growth was broad-based across geographies and customer markets, led by Networking product revenue which surged 15% to $7.77 billion, driven by AI Infrastructure solutions (particularly Service Provider Routing and Data Center Switching) and Campus Networking. Product revenue overall increased 10%, while services revenue grew 2%. Software revenue totaled $5.7 billion, up 3%, and subscription revenue rose 2%.
Gross margin declined slightly to 65.5% from 65.9% a year ago, a 0.4 percentage point decrease. Product gross margin fell 0.6 points to 64.5%, pressured by negative product mix (-2.2 pts) and pricing (-1.1 pts), partially offset by productivity improvements (+1.7 pts) and lower amortization of purchased intangible assets (+1.1 pts). Services gross margin improved 0.4 points to 68.4% due to cost efficiencies.
Operating income jumped 43% to $3.36 billion, with operating margin expanding 5.6 percentage points to 22.6%, primarily driven by lower restructuring and other charges and revenue growth. Total R&D, sales & marketing, and G&A expenses as a percentage of revenue declined 1.8 points to 40.3%. Net income rose 5% to $2.86 billion, while diluted EPS increased 6% to $0.72, reflecting revenue growth and margin improvement partially offset by a $720 million tax benefit in the prior-year quarter.
All three geographic segments posted revenue growth. Americas revenue increased 9% to $8.99 billion, with product revenue up 12% led by the Service Provider and Cloud customer market (AI Infrastructure). Within Americas, the United States grew 13% and Mexico 25%, while Brazil declined 28% and Canada 3%. EMEA revenue rose 5% to $3.78 billion, with product revenue up 6% across all customer markets; notable country growth included Netherlands (+35%), UK (+6%), and Saudi Arabia (+9%). APJC revenue increased 5% to $2.11 billion, with product revenue up 7%; Japan (+12%), Singapore (+50%), and China (+15%) drove gains, partially offset by Australia (-11%).
From a product category perspective, Networking grew 15% ($1.0 billion), Security declined 2% ($37 million) due to a shift from on-premise Splunk deals to cloud subscriptions, Collaboration fell 3% ($30 million) on declines in Devices and Webex Suite, and Observability rose 6% ($16 million) driven by ThousandEyes.
Cisco's MD&A indicates a positive demand environment, with management highlighting strong revenue growth across all geographies and solid margins. The company plans to continue investing in key priority areas, particularly AI, to drive profitable growth over the long term. Management noted that restructuring charges from the fiscal 2025 plan (impacting ~7% of workforce) are expected to be completed by the end of Q2 fiscal 2026. The company targets returning a minimum of 50% of free cash flow annually to stockholders through dividends and share repurchases. No specific forward guidance for revenue or earnings was provided in this MD&A section.
As of October 25, 2025, Cisco held $8.4B in cash and equivalents and $7.3B in investments (including available-for-sale debt and marketable equity). Total debt stood at $28.1B, virtually unchanged from July 26, 2025. Shareholders' equity was $46.9B. Deferred revenue, a key indicator of future performance, was $27.97B, slightly down from $28.78B. Inventory increased to $3.4B from $3.16B, driven by higher work-in-process and finished goods.
Inventory purchase commitments with contract manufacturers and suppliers totaled $8.32B, with $7.88B due within one year, $0.40B in 1-3 years, and $0.05B beyond three years. Additionally, Cisco has $0.5B in funding commitments for privately held investments and $0.13B in channel partner financing guarantees.
During Q1 FY2026, Cisco repurchased 29 million shares for $2.0B, leaving $12.2B remaining under the stock repurchase program. Dividends of $0.41 per share were paid, totaling $1.62B, a 2.5% increase from the prior year's $0.40. Net debt change was minimal (net -$4M), with $1.56B in debt issued and $2.79B repaid. Capital expenditures were $323M, or 2.17% of sales.
Note 19 provides segment revenue and gross margin. Americas generated $8.99B in revenue (+8.9% YoY) with a gross margin of $6.00B; EMEA $3.78B (+5.5%) with gross margin $2.72B; APJC $2.11B (+5.5%) with gross margin $1.41B. U.S. revenue was $8.1B. Operating income is not allocated to segments, with unallocated corporate items of -$391M reducing total gross margin to $9.75B.
Operating cash flow (CFO) of $3.212 billion exceeded net income of $2.860 billion, yielding a CFO-to-NI ratio of 1.12x, indicating solid cash conversion. The primary non-cash add-backs were share-based compensation ($1.055B) and depreciation/amortization ($606M). A significant working capital tailwind came from accounts receivable ($1.857B), partially offset by declines in deferred revenue (-$723M) and accrued compensation (-$539M).
Capital expenditures rose to $323 million (from $217M in the prior year), representing a capex intensity of 10.1% of CFO. Free cash flow (CFO minus capex) was approximately $2.889 billion, covering share repurchases ($1.992B) and dividends ($1.617B) with a 1.0x coverage ratio.
Notable anomalies: A large tax payment swing (income taxes net -$128M vs -$806M prior year) boosted CFO, while inventory built $234M (vs a $229M drawdown last year). Financing activities showed net debt issuance of -$229M (issuances $1.559B less repayments $2.788B) and a $1.260B net increase in short-term borrowings.