Cisco ((CSCO)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Cisco’s recent earnings call painted a picture of robust growth and strong demand in key areas, despite facing some challenges. The overall sentiment was positive, driven by significant revenue increases and impressive returns to shareholders. However, concerns were raised about the security and collaboration segments, as well as cost pressures from rising DRAM prices.
Record-Breaking Q1 Revenue and EPS
Cisco reported an impressive 8% increase in Q1 revenue year over year, with product revenue up by 10%. The company’s non-GAAP earnings per share also grew by 10%, surpassing previous guidance. This record-breaking performance underscores Cisco’s strong market position and operational efficiency.
Strong AI Infrastructure Demand
The demand for AI infrastructure was a standout in the earnings call, with total product orders growing by 13% year over year. Cisco reported AI infrastructure orders totaling $1.3 billion in Q1, and the company anticipates generating $3 billion in AI infrastructure revenue by fiscal year 2026.
Growth in Networking and Public Sector
Networking product orders saw accelerated growth, reaching high teens in Q1. Additionally, public sector orders increased by 12% year over year, highlighting Cisco’s expanding footprint in these critical areas.
Strong Capital Returns
Cisco demonstrated its commitment to shareholders by returning $3 billion through dividends and share repurchases, representing 125% of free cash flow in Q1. This move reflects the company’s strong financial health and shareholder-friendly policies.
Robust Cash Position
The company reported an operating cash flow of $3.2 billion, with total cash, cash equivalents, and investments amounting to $15.7 billion. This robust cash position provides Cisco with the flexibility to invest in growth opportunities and navigate market challenges.
Decline in Security Revenue
Despite overall growth, Cisco faced a 2% decline in security revenue, attributed to declines in prior generation products and a strategic shift towards cloud subscriptions in the Splunk business.
Challenges in Collaboration Segment
The collaboration segment saw a 3% revenue decline, reflecting challenges in devices and WebEx. This area remains a concern as Cisco navigates changing market dynamics and customer preferences.
Impact of DRAM Pricing
Cisco noted significant price increases in DRAM, which, coupled with a tightening supply, impacted the company’s cost structures. This challenge is expected to persist in the near term.
Forward-Looking Guidance
Looking ahead, Cisco provided optimistic guidance for fiscal year 2026, projecting revenue between $60.2 billion and $61 billion, with non-GAAP EPS ranging from $4.08 to $4.14. For Q2, the company expects revenue between $15 billion and $15.2 billion, with non-GAAP EPS between $1.10 and $1.13. The company also anticipates AI infrastructure orders to generate approximately $3 billion in revenue from hyperscalers this fiscal year.
In summary, Cisco’s earnings call highlighted a strong performance with record-breaking revenue and EPS growth, driven by demand for AI infrastructure and networking solutions. While the company faces challenges in the security and collaboration segments, its robust cash position and strategic focus on growth areas provide a solid foundation for future success.