tapebrief
CSCO · Q2 2026

CSCO · Q3 2026 Earnings

Bullish

Cisco

Reported May 13, 2026

30-second summary

Q3 revenue grew 12% YoY to $15.8B and non-GAAP EPS hit $1.06, both clearing the prior Q3 guide ($14.65–14.85B / $0.97–0.99) by wide margins. Management raised FY26 revenue guidance to $62.8–63.0B from the original $59–60B set at Q4 FY25 — a $3.4B midpoint lift. The headline disclosures: FY26 hyperscale AI infrastructure orders now expected at ~$9B (up from the prior $5B anchor, per the press release), with $5.3B already taken year-to-date, and FY26 AI revenue at ~$4B (up from ~$3B). Networking +25% YoY, total product orders +35% YoY, and a 66.0% non-GAAP gross margin print — which came in ~150bps below the prior Q3 guide of 67.5–68.5% — confirm the demand surge is real but also that the gross-margin band has structurally reset lower (management's new Q4 guide of 65.5–66.5% formalizes the new operating zone). Cisco also announced a restructuring plan of up to $1B pre-tax ($450M in Q4 FY26, balance in FY27) to reallocate resources into silicon, optics, security, and AI.

Headline numbers

EPS

Q3 FY2026

$1.06

Revenue

Q3 FY2026

$15.80B

+12.0% YoY

Gross margin

Q3 FY2026

63.6%

Free cash flow

Q3 FY2026

$3.34B

Operating margin

Q3 FY2026

25.0%

Key financials

Q3 FY2026
MetricQ3 FY2026Q3 FY2025YoYQ2 FY2026QoQ
Revenue$15.80B$14.10B+12.1%$15.30B+3.3%
EPS$1.06$0.96+10.4%$1.04+1.9%
Gross margin63.6%65.6%-200bps65.0%-140bps
Operating margin25.0%22.6%+240bps24.6%+40bps
Free cash flow$3.34B————

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

MetricPeriodPrior guideActualΔResult
RevenueQ3 FY2026$14.65B to $14.85B$15.8B+$0.95B to $1.15B above guideBeat
Non-GAAP EPSQ3 FY2026$0.97 to $0.99$1.06+$0.07 to $0.09 above guideBeat
Non-GAAP Gross MarginQ3 FY202667.5% to 68.5%66.0%-1.5pts to -2.5pts below guideBeat
Non-GAAP Operating MarginQ3 FY202633% to 34%34.2%+0.2pts to +1.2pts above guideBeat

New guidance

MetricPeriodGuideYoY
GAAP EPSFY2026$3.16 to $3.21—
AI Infrastructure Revenue from HyperscalersFY2026approximately $4.0B—
AI Infrastructure Orders from HyperscalersFY2026approximately $9.0B—
RevenueQ4 FY2026$16.7B to $16.9B+13.8% to +15.3% YoY
Non-GAAP EPSQ4 FY2026$1.16 to $1.18—
GAAP EPSQ4 FY2026——

Changes to prior guidance

MetricPeriodPrior guideNew guideΔResult
Revenue
FY2026
$59.0B to $60.0B$62.8B to $63.0B+$2.8B to $3.0BRaised
Non-GAAP EPS
FY2026
$4.00 to $4.06$4.27 to $4.29+$0.21 to $0.29Raised

Product revenue

Q3 FY2026
SegmentQ3 FY2026Q3 FY2025YoY
Networking$8.815B$7.068B+24.7%
Security$2.008B$2.013B-0.2%
Collaboration$1.024B$1.031B-0.7%
Observability$0.269B$0.261B+3.1%
Services$3.724B$3.775B-1.4%

Geographic mix

Q3 FY2026
SegmentQ3 FY2026Q3 FY2025YoY
Americas$9.569B$8.38B+14.2%
EMEA$4.054B$3.736B+8.5%
APJC$2.218B$2.034B+9.0%

Management tone

Customer optimization hangover → AI experiments → AI-driven re-acceleration → AI as quantified revenue engine → AI as structural multi-year platform with enterprise expansion

The AI framing collapsed from "approximately $3B revenue, $5B orders" to a $4B revenue / $9B order anchor in a single quarter. Per the press release: "raising expected FY26 orders to $9 billion, up from $5 billion" and "raising expected FY26 revenue to $4 billion, up from $3 billion." Management also disclosed $5.3B of hyperscaler orders already taken YTD — itself exceeding the prior $5B full-year anchor with a quarter remaining. From the transcript: "we now expect to take AI infrastructure orders of approximately $9 billion from hyperscalers in FY26, four and a half times our FY25 total." And the forward anchor: "it is reasonable to expect that we would recognize at least $6 billion of revenue in FY27." Management has gone from anchoring to backlog conversion to anchoring to a forward order pace they are confident enough to publish.

Silicon One transitioned from "future strategic necessity" to "current decisive moat" in three quarters. The anchor quote: "if you don't have silicon you're going to struggle to be relevant to the hyperscalers and i think that's what we're seeing." The five Q3 design wins — including the first two P200 scale-across wins, plus a third in early Q4 — are the proof points behind it. This is unusually exclusionary language from Cisco.

Campus networking re-anchored from "multi-year tailwind beginning to build" to "still at the start of a multi-year, multi-billion dollar refresh." Networking printed +25% YoY revenue, networking orders >50%, and management was explicit: "we are still at the start of a multi-year, multi-billion dollar campus refresh opportunity." The "still at the start" phrasing — combined with seven consecutive quarters of double-digit networking growth and the 3x traffic forecast — extends the addressable market narrative rather than treating the cycle as already underway.

Enterprise AI moved from "$2B+ pipeline with $200M Q1 bookings" to "$3B pipeline with $900M YTD orders." The diversification thesis — that AI demand isn't a four-customer story — has been validated at a category level: enterprise/Neocloud/Sovereign AI orders are now running at a pace that would annualize past $1.2B if Q3 holds.

Security went from "purely timing drag" to "approaching double-digit organic growth exit-rate." This quarter the print is 0% YoY — a sequential improvement — and management told UBS that Cisco is "exiting fiscal year approaching double-digit organic security revenue growth." That's a sharper near-term commitment than anything management has anchored on security in four quarters.

Margin framing reset. The 66.0% Q3 print came in below the prior 67.5–68.5% guide. Management's response was not to defend the prior band but to formally lower it: the new Q4 guide of 65.5–66.5% matches the Q3 print, and Patterson stated "we do believe the gross margins have stabilized." The mix (hardware ~30% growth vs software ~1%) and memory costs are now the operating reality, with the lever shifted to op-margin discipline (Q3 op margin 34.2%, Q4 guide 34–35%).

Recurring themes management leaned on this quarter:

AI infrastructure hyperscaler demand acceleration with FY26 orders now expected at $9B vs prior $5B targetSilicon One emerging as decisive competitive moat winning multiple major scale-across design winsCampus networking refresh entering structural multi-year cycle driven by 3x traffic increase from AIEnterprise AI infrastructure pipeline and orders ($3B pipeline, $900M YTD) creating new revenue stream beyond hyperscalersAgentic AI security framework becoming core product strategy across firewalls, XDR, and observabilityAcacia optics market leadership with 200%+ FY26 growth and industry-leading coherent pluggable shipment volumes

Risks management surfaced:

Memory price increases continuing to pressure product gross margins (down 330 bps YoY)Splunk on-premise to cloud transition creating near-term revenue drag despite customer winsTariff and exemption changes could impact FY26 guidance (explicitly flagged in guidance)Prior generation security portfolio decline continuing to offset new product growth (though at lesser rate)Operating cash flow declined 7% YoY despite strong results due to investments to meet AI infrastructure demand

Q&A highlights

Tal Liani · Bank of America

Non-AI orders grew 19% excluding hyperscalers. Questioned whether this growth is sustainable or driven by enterprises buying ahead due to supply constraints, given the non-AI environment hasn't improved significantly quarter-over-quarter.

Management attributed acceleration to enterprise focus on AI inferencing and agentic applications requiring network modernization, cybersecurity threat preparation, and continued hyperscale design wins. Mark provided three data points suggesting pull-ahead was modest: Q2 X webscale order growth at 10% vs Q3 at 19% (9-point acceleration, with 4-5 points from price increases); Q4 pipeline pull-forward analysis showed no incremental difference vs year ago; Q4 pipeline grew throughout Q3 with no degradation.

Enterprise data center switching business up over 40% in ordersQ2 X webscale order growth: 10%Q3 X webscale order growth: 19%Price increases accounted for 4-5 points of acceleration

Aaron Rakers · Wells Fargo

Asked about supply chain assessment beyond memory, including wafer allocation for silicon one, and requested unpacking of significant implied AI order increase from $1.9B to $3.7B in Q4.

Management emphasized Silicon One design ownership provides supply chain control over wafers, substrates, assembly, and test. Detailed 20+ memory reduction programs, strategic Nanya investment with 3-year agreement, DDR4 to DDR5 conversions, and inventory/advanced purchase commitments up $6.7B in 90 days (48% increase), up $11.6B year-over-year. No decommits observed. AI order jump driven by Silicon One wins (half in optics), Acacia acceleration, scale-out focus, and five design wins with early Q4 orders expected but scale not until FY27.

Silicon supply secured through calendar year 26 (8 months)20+ memory reduction programs activeWireless products in Q4 will require 50% less memoryStrategic investment in Nanya with 3-year supply agreement

David Vogt · UBS

Asked about security and software portfolio improvement trajectory, Splunk model transition impact in FY27, and how margin dynamics will be affected by hardware mix growth vs software growth with AI revenue scaling.

Security portfolio showing improvement with new/refreshed products in double-digit growth and legacy business less of a drag. Firewall business delivering strong double-digit order growth with several quarters of big win rates. Exiting fiscal year approaching double-digit organic security revenue growth. Splunk FY27 dependent on cloud vs on-prem mix shift (saw 2-3 point shift in Q3). Gross margin drivers primarily mix (hardware ~30% growth vs software ~1%) and memory; hardware margins good and supply chain productivity substantial; scale provides additional margin benefit.

New/refreshed security products growing in double digitsFirewall business showing very strong double-digit order growthExiting FY26 approaching double-digit organic security revenue growthSplunk cloud vs on-prem mix shift: 2-3 points in Q3

Mina Marshall · Morgan Stanley

Asked about order duration for AI orders in fiscal 26-27 given supply chain concerns, and requested decomposition of gross margin headwinds between memory and product mix.

Management stated no change in order duration; AI orders remain nonlinear with advance planning as always. Gross margins stabilized at 66% with key drivers being memory utilization reduction programs (20+), DDR4 to DDR5 conversions, pricing increases, adjusted terms/conditions (15-day notice vs 30-day), and advanced purchase commitments up $6B in 90 days. Operating margins at 34% as percentage of revenue with operating leverage focus—grew bottom line faster than top line in Q3.

No change in AI order duration vs historical patternsQ3 gross margins: 66% (midpoint of guidance)Q4 gross margin guidance: 66% midpoint20+ memory utilization reduction programs

Michael Ng · Goldman Sachs

Asked for pricing strategy details across products in FY26, terms and conditions changes, and price elasticity observations.

Management implemented pricing only on hardware (not software). Tightened terms and conditions from 30-day notice + 30-45 day quote honor period to 15-day notice + 15-day quote honor period (roughly half the prior window). Price increases account for 4-5 points of non-webscale order acceleration in Q3 (10% to 19% growth). Pricing applied thoughtfully based on product competitiveness and memory utilization levels.

Pricing applied to hardware only, not softwareTerms/conditions reduced from ~60-75 days to ~30 days total exposureNon-webscale Q2 order growth: 10%Non-webscale Q3 order growth: 19%

Answers to last quarter's watch list

Whether Q3 AI infrastructure orders sustain near or above the $2.1B Q2 pace — Q3 hyperscaler AI orders printed $1.9B, modestly below Q2 but with FY26 anchored at ~$9B total ($5.3B YTD), implying ~$3.7B in Q4. The trajectory is unambiguously higher, just not strictly sequential — and management explicitly called the business non-linear. Status: Resolved positively
Whether FY26 revenue guidance gets raised again, held flat, or trimmed — Raised to $62.8–63.0B, a $3.4B midpoint lift vs the original $59–60B FY26 guide set at Q4 FY25. Status: Resolved positively
Security revenue YoY in Q3 — Printed 0% (flat) vs -4% in Q2 and -2% in Q1; management committed to "approaching double-digit organic security revenue growth" exiting FY26. The trajectory has bent the right way; the absolute level is still not in growth. Status: Resolved positively
Non-GAAP gross margin print vs. the 67.5–68.5% Q3 guide — Printed 66.0%, ~150bps below the low end of the prior guide. Management reset the band for Q4 to 65.5–66.5%, formalizing the new operating zone. Status: Resolved negatively (the prior guide missed, with the band lowered going forward)
Operating cash flow recovery vs. the $1.8B Q2 print — Q3 OCF was $3.76B (down 7% YoY); computed FCF ~$3.34B, a sequential rebound. The working-capital build is structural (inventory +$11.6B YoY) and management has been explicit it's a deliberate response to AI supply lock-in. Status: Continue monitoring

What to watch into next quarter

Whether Q4 AI infrastructure orders hit the ~$3.7B implied by the $9B FY26 anchor — the math is now public; landing below ~$3.5B would force a walk-down of the order figure, while exceeding $4B would set up a fourth consecutive FY27 anchor lift

Q4 non-GAAP gross margin print vs. the 65.5–66.5% guide — the memory headwind (-330bps YoY on product GM) plus mix are the central risk; a print below 65.5% would signal mix and memory are still moving against Cisco

Whether security revenue prints positive YoY for the first time in five quarters — management committed to "approaching double-digit" growth exiting FY26; a Q4 print of +3–5% would validate the commitment, while flat or negative would force a credibility reset

Restructuring execution and FY27 OpEx trajectory — $450M Q4 FY26 charge with the balance in FY27; management framed this as resource reallocation rather than savings, so operating-margin guidance into FY27 will reveal whether reinvestment is fully offsetting any structural savings

Inventory and advanced purchase commitments trajectory — Q3 saw a $6.7B 90-day build; whether Q4 adds another $3–5B (consistent with AI ramp) or normalizes will signal how much working capital Cisco is willing to tie up to lock in FY27 supply

First named enterprise/sovereign customer disclosure against the $3B pipeline / $900M YTD orders — whether Q4 brings a specific customer or just continued category-level color

Sources

  1. Cisco Q3 FY2026 Press Release (Form 8-K Exhibit 99.1), filed May 13, 2026 — https://www.sec.gov/Archives/edgar/data/858877/000085887726000075/exhibit991pressrelease-q3f.htm
  2. Cisco Q3 FY2026 earnings call prepared remarks and Q&A (as reflected in extraction inputs)
  3. Cisco Q2 FY2026 Tapebrief (prior quarter context)
  4. Cisco Q1 FY2026 Tapebrief (multi-quarter trajectory context)
  5. Cisco Q4 FY2025 Tapebrief (FY26 guide baseline context)

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