Cisco Systems, Inc. Q2 FY2026 earnings call

• Q2 was a strong quarter with record revenue and double-digit growth in EPS, above guidance ranges.
• Strong demand for AI infrastructure and Campus networking solutions, with product revenue up 14%.
• Announced a dividend increase, returning $3 billion to shareholders in Q2, totaling $6.6 billion year-to-date.
• Hosted AI Summit to discuss AI impacts, noting legacy infrastructure challenges for AI.
• Implemented strategies to manage memory price increases: price adjustments, revising contractual terms, leveraging supply chain scale.
• Product orders grew 18% y-o-y, with excluding hyperscalers up 10%, enterprise up 8%, public sector up 11%, service provider/cloud up 65%.
• Silicon One architecture advancements, including launching 102.4 terabit per second G300 chip and new systems, Acacia's strong performance with triple-digit growth in bookings.
• Splunk continued transition to cloud subscriptions, with cloud subscriptions enabling greater adoption, and won 500 new logos in H1 FY '26.
• AI advancements in products (e.g., AI defense, SASE enhancements) and internally, with over 90% of customer experience support cases touched by AI/automation.

Total revenue for Q2 was $15.3 billion, up 10% year-over-year. Product revenue was $11.6 billion, up 14%, while services revenue was $3.7 billion, down 1% year-over-year. Networking segment grew 21%, driven by AI infrastructure and campus refresh. Security was down 4% due to prior generation product declines and Splunk's transition to cloud subscriptions. Collaboration posted solid growth of 6%. Recurring metrics: Total RPO was $43.4 billion, up 5%; product RPO grew 8% with the long-term portion at $11.8 billion, up 11%; total ARR ended the quarter at $31 billion, up 3%; total subscription revenue was $7.8 billion, representing 51% of total revenue; total software revenue was $5.7 billion, up 2%.

• Fiscal Q3 guidance: revenue $15.4B-$15.6B, non-GAAP gross margin 65.5%-66.5%, non-GAAP operating margin 33.5%-34.5%, non-GAAP EPS $1.02-$1.04.
• Fiscal year 2026 guidance: revenue $61.2B-$61.7B, non-GAAP EPS $4.13-$4.17. Assumes current tariffs/exemptions remain in place through end of fiscal 2026.

• Memory price increases across the market, impacting gross margin. Cisco is managing this through price adjustments, contractual term revisions, and leveraging supply chain scale, but it remains an industry-wide risk.

Q: James Fish asked about campus refresh and customer order pulling.

A: Chuck Robbins said customers are modernizing infrastructure due to AI requirements and cybersecurity risks, and memory price increases are more nominal in networking than compute, so pull-in of orders is not a big trend in Cisco's networking business