What Cisco Systems (CSCO) Said on Its Q1 Earnings Call

Key Points

• Cisco reported record Q1 revenue of $18.5 billion, up 24%, and adjusted EPS of $1.40, up 40%. Both exceeded guidance, prompting the company to raise its fiscal 2027 revenue outlook to $74.8 billion–$75.8 billion and adjusted EPS outlook to $5.47–$5.53.
• Cisco lifted its fiscal 2027 hyperscaler AI infrastructure revenue forecast to $9 billion from $7.5 billion, citing customer demand and improved visibility. It reported 18 AI design wins over five quarters and described networking demand as part of an early-stage, multiyear cycle.
• Product orders rose 21%, while networking revenue grew 43%; however, adjusted gross margin declined to 65.6% amid a higher hardware mix and elevated memory costs. Cisco expects full-year adjusted gross margin just below 65% and returned $3.7 billion to shareholders in Q1.

Cisco Systems NASDAQ: CSCO raised its fiscal 2027 revenue and earnings outlook after reporting record first-quarter sales, as demand for networking equipment and artificial intelligence infrastructure drove its strongest revenue and earnings growth rates in more than 15 years.

Revenue rose 24% year over year to $18.5 billion, while adjusted earnings per share increased 40% to $1.40. Both figures exceeded the high end of the company’s guidance, CFO Mark Patterson said on the earnings call.

Cisco now expects fiscal 2027 revenue of $74.8 billion to $75.8 billion and adjusted earnings of $5.47 to $5.53 per share. Patterson said the company raised its revenue outlook by $2.5 billion, including $1.5 billion from hyperscale customers and $1 billion from the rest of the business.

AI Infrastructure Forecast Rises

Cisco increased its fiscal 2027 forecast for AI infrastructure revenue from hyperscalers to $9 billion from $7.5 billion, more than double the prior year’s level. Chair and CEO Chuck Robbins attributed the increase to continued customer demand and greater visibility into the year.

Robbins said Cisco secured three new AI design wins in the first quarter: two for P200-powered systems used to connect data centers and extend workloads across them, and one for 1.6-terabit optics in a scale-out application. The company has recorded 18 AI design wins over the past five quarters, he said.

The $9 billion forecast includes hyperscalers but excludes neocloud customers, Robbins said. He characterized Cisco’s neocloud exposure as relatively immaterial and said the company has been conservative about credit risk.

Robbins described the opportunity as an early-stage, multiyear networking cycle. He cited hyperscale deployments, campus network upgrades, sovereign infrastructure and enterprise investment in hybrid data centers among the drivers supporting his outlook.

Campus networking product orders rose 14% year over year. Robbins said only 9% of the switching Cisco sold in the quarter came from its new portfolio, which he cited as evidence that the refresh cycle remains in its early stages.

Orders and Networking Revenue Grow

Total product orders increased 21% from a year earlier, including 14% growth excluding hyperscalers. Networking product orders rose 28%, marking the ninth consecutive quarter of double-digit growth.

Growth extended across customer groups: service provider and cloud orders rose 47%, enterprise orders increased 15%, and public sector orders grew 13%. Geographically, orders rose 18% in the Americas, 12% in Europe, the Middle East and Africa, and 57% in Asia Pacific, Japan and China.

Networking revenue increased 43%, led by triple-digit growth in AI infrastructure and double-digit growth in data center switching and campus networking. Security revenue rose 7%, while collaboration revenue increased 8%. Services revenue edged up 1% to $3.9 billion.

Security product orders excluding Splunk rose 15%, which Robbins said was the best growth rate in roughly three years. Firewall orders grew more than 30% for a third consecutive quarter. Patterson said first-quarter security revenue growth was at or slightly above the company’s expectations and that Cisco expects improvement as the year progresses.

Margins and Outlook

Adjusted gross margin fell 250 basis points year over year to 65.6%, as hardware revenue grew faster than software and services. Product gross margin declined 350 basis points to 63.7%, primarily because of the higher hardware mix and elevated memory costs, partly offset by productivity improvements and price increases.

Patterson said Cisco is comfortable with an expectation for full-year adjusted gross margin just below 65%. He said long-term supply agreements, price increases and productivity improvements are helping counter component-cost pressure and changes in the revenue mix.

For the fiscal second quarter, Cisco forecast revenue of $18 billion to $18.2 billion and adjusted earnings of $1.34 to $1.36 per share. It projected adjusted gross margin of 65% to 66% and adjusted operating margin of 36% to 37%.

First-quarter operating cash flow rose 36% to $4.4 billion. Cisco returned $3.7 billion to shareholders through dividends and share repurchases, with $6.1 billion remaining under its repurchase program.

About Cisco Systems (NASDAQ:CSCO)

Cisco Systems, Inc. develops networking, cybersecurity, collaboration and observability technologies for businesses, governments and other organizations. Its products include routers, switches, wireless systems and data center infrastructure, along with security software and services that help organizations connect and protect their networks. The company also provides collaboration tools through its Webex platform and observability capabilities through its software offerings, including technology from Splunk, which Cisco acquired in 2024.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.