CISCO SYSTEMS, INC.

Cisco Systems, Inc. designs and sells a broad range of technologies that help to power, secure, and draw insights from the Internet, incorporating artificial intelligence into product portfolios across networking, security, collaboration and observability. The company operates globally and is organized into three geographic segments: Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC). Customers include businesses of all sizes, public institutions, governments, and service providers, including large webscale providers. The industry is characterized by rapidly changing technology, evolving industry standards, and intense competition, with barriers to entry that are relatively low and new ventures regularly formed to create competing products.

Cisco competes with numerous vendors in each product category, including Amazon Web Services LLC, Arista Networks, Inc., Broadcom Inc., Ciena Corporation, CrowdStrike Holdings, Inc., Datadog Inc., Dell Technologies Inc., Dynatrace Inc., Fortinet, Inc., Hewlett-Packard Enterprise Company, Huawei Technologies Co., Ltd., Microsoft Corporation, New Relic, Inc., Nokia Corporation, Nvidia Corporation, Palo Alto Networks, Inc., RingCentral, Inc., Zoom Video Communications, Inc., and Zscaler, Inc., among others. The company faces price-focused competition from competitors in Asia, especially from China, and anticipates this will continue. Principal competitive factors include the ability to sell successful business outcomes, provide a broad range of products and services, product performance, price, ability to introduce new products, reduce production costs, provide value-added features such as security and reliability, conformance to standards, market presence, ability to provide financing, and disruptive technology shifts and new business models.

Cisco generates revenue through the sale of products and services, with product revenue of $41.608 billion ¹ and services revenue of $15.046 billion ² in fiscal 2025. The company is shifting its business model to deliver more recurring software and subscription offerings, accelerated by recent acquisitions including Splunk. Total subscription revenue was $31.526 billion ³ in fiscal 2025, compared to $27.380 billion ⁴ in fiscal 2024. A substantial portion of products and services is sold indirectly through channel partners, including systems integrators, service providers, other third-party resellers, and distributors, with the remainder sold through direct sales. The company provides financing arrangements for certain qualified customers, including loans, leases, and channel financing arrangements, which management believes is a competitive advantage.

Cisco's product categories are Networking, Security, Collaboration, and Observability. Networking revenue was $28.304 billion ⁵ in fiscal 2025, a decrease of 3% ⁶ from $29.229 billion ⁷ in fiscal 2024, driven by declines across the portfolio as product shipments returned to normalized levels from elevated levels in the first half of fiscal 2024, primarily driven by servers and a decline in campus switching. Security revenue was $8.094 billion ⁸ in fiscal 2025, an increase of 59% ⁹ from $5.075 billion ¹⁰ in fiscal 2024, primarily driven by Threat Intelligence, Detection, and Response offerings including Splunk, and to a lesser extent growth in SASE and Network Security offerings. Collaboration revenue was $4.154 billion ¹¹ in fiscal 2025, an increase of 1% ¹² from $4.113 billion ¹³ in fiscal 2024, driven by growth in Collaboration Devices, CPaaS and Contact Center offerings, partially offset by a decline in Webex Suite offerings. Observability revenue was $1.055 billion ¹⁴ in fiscal 2025, an increase of 26% ¹⁵ from $837 million ¹⁶ in fiscal 2024, driven by Observability Suite offerings from Splunk and growth in ThousandEyes network services offerings, partially offset by a decline in monitoring and analytics.

Services revenue was $15.046 billion ¹⁷ in fiscal 2025, an increase of 3% ¹⁸ from $14.550 billion ¹⁹ in fiscal 2024, primarily driven by software, cloud and virtualization support from Splunk and product offering support services. Services revenue increased across each geographic segment. The services portfolio includes technical support services, which provide comprehensive assistance including issue resolution, software support and hardware replacement, and advanced services including planning, design, implementation, and high-value consulting services. The company is incorporating AI into its services offerings to enable customers to derive greater business value from their technology investments.

In the first quarter of fiscal 2025, Cisco announced a restructuring plan expected to impact approximately 7% ²⁰ of its global workforce with estimated pre-tax charges of approximately $1 billion ²¹, incurring charges of $744 million ²² during fiscal 2025. In February 2025, the company issued senior notes for an aggregate principal amount of $5.0 billion ²³. During fiscal 2025, Cisco repurchased 105 million ²⁴ shares of common stock for $5.995 billion ²⁵ at a weighted-average price of $56.53 ²⁶ per share, and paid dividends of $6.437 billion ²⁷ at $1.62 ²⁸ per share. On August 26, 2025, the company settled a legal dispute with a supplier relating to purchase obligations arising under long-term supply arrangements, which resulted in a charge to product cost of sales.

Total revenue for fiscal 2025 was $56.654 billion ²⁹, an increase of 5% ³⁰ compared to $53.803 billion ³¹ in fiscal 2024. Product revenue increased by 6% ³² and services revenue increased by 3% ³³. Total gross margin was 64.9% ³⁴ in fiscal 2025 compared to 64.7% ³⁵ in fiscal 2024, an increase of 0.2 percentage points. Net income was $10.180 billion ³⁶ in fiscal 2025 compared to $10.320 billion ³⁷ in fiscal 2024, a decrease of 1% ³⁸. Diluted earnings per share was $2.55 ³⁹ in fiscal 2025 compared to $2.54 ⁴⁰ in fiscal 2024. Operating income was $11.760 billion ⁴¹ in fiscal 2025 compared to $12.181 billion ⁴² in fiscal 2024, a decrease of 3% ⁴³. Net cash provided by operating activities was $14.193 billion ⁴⁴ in fiscal 2025 compared to $10.880 billion ⁴⁵ in fiscal 2024.

A key growth vector is the AI-ready data center strategy, which involves transforming data centers to power AI workloads anywhere, bringing together infrastructure across networking, compute, storage, and silicon with unified management and security from on-premise to cloud. The company introduced the Cisco N9300 Series Smart Switches with a new class of intelligent networking silicon alongside embedded Data Processing Units, representing a new vision for AI data center designs. Cisco Hypershield, a cloud-native and AI-powered approach to highly distributed security for AI-scale data centers built into the fabric of the network, is the first service offering available embedded on these new switches. The company also introduced Cisco Smart Switches, the Cisco 9350 and Cisco 9610, which are AI-ready with advanced telemetry and assurance capabilities, built on Cisco Silicon One and equipped with quantum-resistant security and post-quantum cryptography. In fiscal 2025, the company entered into additional purchase commitments with contract manufacturers and suppliers related to manufacturing Cisco Silicon One and other products to meet demand from webscale and other customers, and expects to continue entering into these additional purchase commitments in fiscal 2026.

Another growth vector is the cybersecurity strategy, which is based on three pillars: moving from point solutions to a platform comprehensively integrated with the infrastructure; infusing security into the fabric of the network; and harnessing the depth and breadth of telemetry data from Cisco and the acquisition of Splunk to prevent, detect, and respond to sophisticated attacks. The company is accelerating the expansion of its Secure Access Service Edge (SASE) architecture, delivering a seamless combination of network and security functionality through a single, cloud-native platform. The Splunk platform and security offerings significantly strengthen Threat Intelligence, Detection, and Response capabilities, and Cisco has been integrating Cisco Extended Detection and Response (XDR) with Splunk Enterprise Security to create a unified solution. The company is also focused on digital resilience, helping to keep the data center, workplace, and entire IT environment securely up and running through network assurance capabilities powered by ThousandEyes, observability solutions, and robust security measures.

Total gross margin increased by 0.2 percentage points ⁴⁶ in fiscal 2025 compared to fiscal 2024. Product gross margin increased by 0.2 percentage points ⁴⁷, driven by benefits from Splunk and productivity improvements, partially offset by negative impacts from pricing, a charge as a result of a legal dispute with a supplier, and amortization of purchased intangible assets primarily related to Splunk. Services gross margin percentage increased by 0.4 percentage points ⁴⁸ primarily due to higher sales volume and lower delivery costs, partially offset by higher headcount-related costs. The company expects gross margin to vary over time and the level of product gross margin may not be sustainable due to various factors including changes in customer, geographic, or product mix, introduction of new products, entry into new markets, sales discounts, increases in material or labor costs, excess inventory charges, and increased price competition.

In fiscal 2025, the company entered into additional purchase commitments with contract manufacturers and suppliers related to manufacturing Cisco Silicon One and other products to meet demand from webscale and other customers, and expects to continue entering into these additional purchase commitments in fiscal 2026. These actions and additional purchase commitments have significantly increased supply chain exposure, which resulted in negative impacts to product gross margin in recent periods and may result in further negative impacts in future periods. The remaining and new supply chain exposures include potential material excess and obsolete or other charges if product demand significantly decreases for a sustained duration, the company is unable to generate demand for certain products planned for development, or is otherwise unable to mitigate these supply chain exposures. The company expects inventory balances may increase in future quarters as it works to fulfill demand from webscale and other customers.

Research and development expenses were $9.300 billion ⁴⁹ in fiscal 2025, an increase of 16% ⁵⁰ from $7.983 billion ⁵¹ in fiscal 2024, primarily due to higher headcount-related expenses reflecting investments in AI, share-based compensation expense, cash compensation expenses from acquisitions, and discretionary spending. Capital expenditures for property and equipment were $905 million ⁵² in fiscal 2025 compared to $670 million ⁵³ in fiscal 2024. The company targets to return a minimum of 50% ⁵⁴ of its free cash flow annually to stockholders through cash dividends and repurchases of common stock. Free cash flow was $13.288 billion ⁵⁵ in fiscal 2025. The remaining authorized amount for stock repurchases under the stock repurchase program is approximately $14.2 billion ⁵⁶ with no termination date. On August 13, 2025, the Board of Directors declared a quarterly dividend of $0.41 ⁵⁷ per common share.

Structural headwinds include challenging global economic conditions, including tariffs or other trade barriers, rising inflation, or other changes that have from time to time contributed to slowdowns in the communications and networking industries, resulting in reduced demand for products, increased price competition, risk of excess and obsolete inventories, risk of supply constraints, and higher overhead costs. The company faces exposure to new and proposed tariffs and other trade policies, the extent of which is uncertain but could be significant if the exposure remains and the company is unable to mitigate it. The service provider and cloud market is especially volatile, characterized by large and sporadic purchases and longer sales cycles, and product orders from this market could decline in the future. The company also faces risks related to the development and use of artificial intelligence, including potential legal and regulatory action, damage to reputation, and unintended consequences such as inadvertent disclosure or misuse of intellectual property.

Geographic and macro factors management identified as constraints include the impact of uncertainty regarding global central bank monetary policy, instability in the geopolitical environment in many parts of the world including the on-going Russia and Ukraine war, Middle East conflicts and wars, and China-Taiwan relations. The company conducts significant sales and customer support operations in countries around the world and depends on non-U.S. operations of its contract manufacturers, component suppliers and distribution partners. Future results could be negatively impacted by political or economic changes in a specific country or region, including impacts from global central bank monetary policy, issues related to the political relationship between the United States and other countries, government-related disruptions, foreign currency exchange rates, geopolitical tensions, political or social unrest, economic instability, natural disasters, trade protection measures such as tariffs, and other legal and regulatory requirements.

Cisco faces significant risks from supply chain issues, including financial problems of contract manufacturers or component suppliers, or a shortage of adequate component supply that could increase costs or cause delays in fulfilling orders. In fiscal 2025, the company entered into additional purchase commitments with contract manufacturers and suppliers related to manufacturing Cisco Silicon One and other products, significantly increasing supply chain exposure, which resulted in negative impacts to product gross margin and may result in further negative impacts in future periods. On August 26, 2025, the company settled a legal dispute with a supplier relating to purchase obligations arising under long-term supply arrangements, which resulted in a charge to product cost of sales. The company also faces intense competition, with price-focused competition from competitors in Asia, especially from China, and the markets are characterized by rapid change, converging technologies, and a migration to networking and communications solutions that offer relative advantages. Additionally, the company's operating results may be negatively impacted by unfavorable economic and market conditions and the uncertain geopolitical environment, including tariffs or other trade barriers, rising inflation, and instability in many parts of the world including the on-going Russia and Ukraine war, Middle East conflicts and wars, and China-Taiwan relations. The company's financial performance may be negatively impacted by demand for, and costs to deliver, its software subscription offerings, and interruptions or performance problems associated with these offerings, including those caused by third-party providers on which it relies.

Management's message emphasizes that in fiscal 2025, the company delivered strong revenue growth across all geographies and solid margins as it saw a positive demand environment. Total revenue increased by 5% ⁵⁸ compared with fiscal 2024, with product revenue increasing by 6% ⁵⁹ and services revenue increasing by 3% ⁶⁰. The results for fiscal 2025 include a full year of Splunk's results compared to approximately four months for fiscal 2024. Management states that the company continues to operate in a highly competitive environment, one that is complex especially with respect to tariffs and trade policy, and plans to continue to invest in key priority areas with the objective of driving profitable growth over the long term. The strategic priorities emphasized are modern infrastructure, cybersecurity, and AI and data, which drive innovation and technology, and the company is bringing together the power of its portfolio, referred to as One Cisco, to provide three key outcomes: AI-ready data centers, future-proofed workplaces, and digital resilience. Management believes the company is making progress on its strategic priorities.