Cisco Systems, Inc. · Q4 FY2026 call

We believe the accelerating adoption of agentic AI is fueling a networking super cycle. As customers look to manage increasing traffic and costs, they are investing in Cisco's networking stack for inferencing across cloud, on-premise, and edge environments.

Moving to AI infrastructure for hyperscalers. We took $4 billion in orders in Q4, bringing the total for FY 2026 to $9.3 billion, approximately 4.5 x our fiscal year 2025 total. The mix of these orders in both Q4 and FY 2026 was approximately 60% Silicon One-based systems and 40% optics.

For perspective, in FY 2026, approximately 6% of our total revenue was from AI infrastructure for hyperscalers, up from less than 2% in FY 2025.

In addition to the hyperscaler demand, we took over $400 million in AI infrastructure orders from neocloud, sovereign, and enterprise customers in Q4, bringing the total for the year to over $1 billion.

we think the traffic that's generated from AI-based scale-across, which is effectively what used to be data center interconnect, is 14x what it was historically. We're uniquely positioned because in that space, we've got our P200, which we talked about having three wins already in that space across three different hyperscalers. By the way, we started taking orders from all three of them in Q4

we ended FY 2026 with double-digit top-line and bottom-line growth, 12% and 14%. We see acceleration in both of those. So accelerating to 15% on the top line, 17% on the bottom line, again, driving that operating leverage with bottom line growth faster than the top line. With the $7.5 billion in hyperscale revenue, if you kind of back that out, you get to the core business growing at about 10%

we are in this networking super cycle, which we are very early in the cycle, and we are shipping high volumes of hardware, which is increasing the revenue mix to hardware considerably. So you should expect a slight gross margin headwind as we move through FY 2027 as we address these very high growth opportunities.

Operating margin is really a better indicator of our profitability, as our guide implies operating margin of about 35% for the full year FY 2027, which would be a high watermark for us as a company.

This business, because of the magnitude of it and the growth rates, it allows us to take, even in some cases, a lower-margin business from a gross margin perspective that actually turns out to be highly profitable because we do not have to add incremental expenses to go gather that business. These are strategic decisions we are making about business to pursue

I think Q4 is a great example of that. Gross margins on a year-over-year basis were down 2.1%, but OPEX was also down 3.7% as a percentage of revenue

that 14% did have, and you kind of alluded to this could be the fact, did have a little bit of an anomaly in there. We saw Splunk during the quarter, and it always just depends on customer preference. During the quarter, we had some sizable on-prem deals that also had a little bit longer duration.

if they continue to use cloud-based models, that is good for us, just like it has been for the last two years. If they move to open-weight models or models that they are running on-prem, that is great for us because it means they will invest in more enterprise private data center networking, which we have seen the last two quarters.

We really do not have any significant lead time issues that we are seeing, unlike we have heard a number of different peers talk about. […] We do not have any middleman between us and TSMC, so when we are securing silicon, we are looking at the whole supply chain, whether it is wafer substrates, assembly, and test, and really dealing directly with TSMC.

on the AI orders, just for clarity, we did about $4 billion in revenue and $9 billion in orders for FY 2026. So obviously you are entering with some good backlog as we go into 2027. But these are non-linear orders that are massive in scale and are usually placed well ahead of time. So I think the $7.5 billion is a good prudent guide for the year.

In terms of the price increases, as you look at the impact on the financials, it was about five points in terms of top line revenue growth that we saw in Q4. As we look to FY 2027, you are going to begin to lap those price increases […] Overall, we are sort of planning for that kind of four to five points of impact this year as well.

the price increases that we have done have been single digit. Unlike other companies that may have a majority of their products that are servers, 95% of what we sell are not servers, roughly. So rather than 2/3 of the bill of materials value being in memory, you are in kind of the 15%-20% of the bill of materials might be memory related for our products.

what we're hearing from our customers, is they're currently reprioritizing within their existing budgets. I would also say that you're beginning to see a trend where our customers are looking at AI readiness, Mythos readiness, quantum readiness, in a similar vein to how they've looked at cybersecurity spend over the last three to five years. It's just not optional.

As we get into FY 2027, we'll move to a more traditional revenue target, which we gave you of $7.5 billion. […] just won't put out an annual target, but instead, we'll have an annual revenue target. You should, though, expect orders to be meaningfully higher, I would say, in FY 2027 than they were in FY 2026.

I want to make sure we're not thinking that we're accidental recipients of what's going on in this AI transition, particularly as it relates to the hyperscalers. […] If you go back just over six years, we had virtually no business with them inside their data centers.