CSCO

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How CSCO rewrote its risk factors

10-K ITEM 1A · FY2025 → FY2026

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OVERVIEW Cisco designs and sells a broad range of technologies including hardware, software, and artificial intelligence (AI) powered digital infrastructure to power, help secure, and draw insights from the Internet.
We are incorporating AI into our product portfolios across networking, security, collaboration and observability, as well as integrating our products more tightly together into a platform.
A summary of our results is as follows (in millions, except percentages and per-share amounts): Three Months Ended Years Ended July 25, 2026 July 26, 2025 Variance July 25, 2026 July 26, 2025 Variance Revenue $ 17,252 $ 14,673 18 % $ 63,325 $ 56,654 12 % Gross margin percentage 64.1 % 63.2 % 0.9 pts 64.5 % 64.9 % (0.4) pts Research and development $ 2,431 $ 2,380 2 % $ 9,563 $ 9,300 3 % Sales and marketing $ 2,952 $ 2,818 5 % $ 11,559 $ 10,966 5 % General and administrative $ 679 $ 706 (4) % $ 2,761 $ 2,992 (8) % Total R&D, sales and marketing, general and administrative $ 6,062 $ 5,904 3 % $ 23,883 $ 23,258 3 % Total as a percentage of revenue 35.1 % 40.2 % (5.1) pts 37.7 % 41.1 % (3.4) pts Restructuring and other charges included in operating expenses $ 511 $ 35 NM $ 693 $ 744 (7) % Operating income as a percentage of revenue 24.7 % 21.0 % 3.7 pts 24.3 % 20.8 % 3.5 pts Income tax percentage 21.8 % 15.0 % 6.8 pts 17.1 % 8.3 % 8.8 pts Net income $ 3,859 $ 2,550 51 % $ 13,267 $ 10,180 30 % Net income as a percentage of revenue 22.4 % 17.4 % 5.0 pts 21.0 % 18.0 % 3.0 pts Earnings per share—diluted $ 0.97 $ 0.64 52 % $ 3.33 $ 2.55 31 % Percentages may not recalculate due to rounding.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Fiscal 2026 Compared with Fiscal 2025 In fiscal 2026, we delivered strong revenue growth and profitability in a continued positive demand environment.
Total revenue was $63.3 billion, an increase of 12% compared with fiscal 2025.
Within total revenue, product revenue increased by 16% and services revenue was flat.
Total software revenue was $23.2 billion across all product areas and services, an increase of 4%, and total subscription revenue increased 1%.
We saw demand in fiscal 2026 for AI infrastructure from our hyperscaler customers, which represented approximately 6% of total revenue in fiscal 2026 compared with less than 2% in fiscal 2025.
We expect this demand to remain a significant driver of our results in fiscal 2027, and we discuss the associated customer concentration and supply considerations in Part I, Item 1A.
Total gross margin decreased by 0.4 percentage points, primarily driven by a decline in product gross margin, partially offset by an increase in services gross margin.
Product gross margin decreased by 0.5 percentage points, primarily driven by negative impacts from product mix and higher memory costs, partially offset by productivity improvements, pricing actions, lower amortization of purchased intangible assets and a charge in fiscal 2025 as a result of a legal dispute with a supplier, which did not recur in fiscal 2026.
As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses, collectively, decreased by 3.4 percentage points.
Operating income as a percentage of revenue increased by 3.5 percentage points primarily driven by revenue growth, partially offset by lower gross margin and higher operating expenses in fiscal 2026.
Diluted earnings per share increased 31%, driven by revenue growth and operating margin improvement.
In terms of our geographic segments, revenue from the Americas increased by $4.1 billion, EMEA revenue increased by $1.8 billion and APJC revenue increased by $0.7 billion.
From a customer market standpoint, we experienced product revenue growth across all of our customer markets.
From a product category perspective, the product revenue increase of 16% was driven by growth in Networking of 22%, particularly within our AI Infrastructure and Campus Networking solutions.
We also saw product revenue growth in Collaboration of 4%, Observability of 4%, and Security of 2%.
We continue to operate in a highly competitive and complex environment, especially as it relates to memory constraints and costs, and trade policy.
Notwithstanding these challenges, we believe that we are making progress on our strategic priorities.
We continue to invest in key priority areas with the objective of driving profitable growth over the long term, and we remain focused on delivering innovation across our technologies to assist our customers in executing on their digital transformations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Fourth Quarter Snapshot For the fourth quarter of fiscal 2026, as compared with the fourth quarter of fiscal 2025, total revenue increased by 18% to $17.3 billion.
Within total revenue, product revenue increased by 24% to $13.5 billion and services revenue was flat at $3.8 billion.
With regard to our geographic segment performance, on a year-over-year basis, revenue from the Americas increased by 18%, EMEA increased by 19% and APJC increased by 14%.
From a product category perspective, on a year-over-year basis, product revenue increased in Networking by 28%, Security by 14%, Collaboration by 12% and Observability by 6%.
The increase in Networking reflected growth in AI infrastructure and data center switching.
Total gross margin increased by 0.9 percentage point s, primarily driven by the absence in the fourth quarter of fiscal 2026 of a charge recorded in the fourth quarter of fiscal 2025 as a result of a legal dispute with a supplier, and by favorable pricing.
These impacts were partially offset by negative impacts from product mix and higher memory costs .
As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses, collectively, decreased by 5.1 percentage points driven by the revenue growth and disciplined expense management.
Operating income as a percentage of revenue increased by 3.7 percentage points, primarily driven by revenue growth and higher gross margin as discussed above, partially offset by higher restructuring and other charges.
Diluted earnings per share increased by 52%, primarily driven by a revenue increase and the increase in our operating margin percentage.
Strategy and Priorities In today’s fast-paced world shaped by AI, businesses and organizations globally are deploying technology to pursue their strategic objectives, from accelerating growth to enhancing operational efficiency and fostering innovation.
Business.” Other Key Financial Measures The following is a summary of our other key financial measures for fiscal 2026 compared with fiscal 2025 (in millions): Fiscal 2026 Fiscal 2025 Cash and cash equivalents and investments $15,918 $16,110 Cash provided by operating activities $14,177 $14,193 Remaining performance obligations $46,734 $43,533 Repurchases of common stock—stock repurchase program $6,106 $5,995 Dividends paid $6,553 $6,437 Inventories $5,694 $3,164 Total debt $29,533 $28,093 CISCO SYSTEMS, INC.
Our total provisions for inventory and the liability related to purchase commitments with contract manufacturers and suppliers were $387 million, $493 million, and $819 million in fiscal 2026, 2025, and 2024, respectively.
Inventories were $5.7 billion as of July 25, 2026 compared with $3.2 billion as of July 26, 2025, reflecting increased demand for our Cisco Silicon One and the impact of higher memory prices.
See Note 13 to the Consolidated Financial Statements for further discussion.
Goodwill as of July 25, 2026 was $59.5 billion.
There was no impairment of goodwill in fiscal 2026, 2025 or 2024.
For the annual impairment testing in fiscal 2026, the excess of the fair value over the carrying value for each of our reporting units was $64.7 billion for the Americas, $88.6 billion for EMEA, and $33.7 billion for APJC.
During the fourth quarter of fiscal 2026, we performed a sensitivity analysis for goodwill impairment with respect to each of our respective reporting units and determined that a hypothetical 10% decline in the fair value of each reporting unit would not result in an impairment of goodwill for any reporting unit.

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Gone since FY2025

OVERVIEW Cisco designs and sells a broad range of technologies that help to power, secure, and draw insights from the Internet.
We are incorporating artificial intelligence (AI) into our product portfolios across networking, security, collaboration and observability as well as integrating our products more tightly together.
A summary of our results is as follows (in millions, except percentages and per-share amounts): Three Months Ended Years Ended July 26, 2025 July 27, 2024 Variance July 26, 2025 July 27, 2024 Variance Revenue $ 14,673 $ 13,642 8 % $ 56,654 $ 53,803 5 % Gross margin percentage 63.2 % 64.4 % (1.2) pts 64.9 % 64.7 % 0.2 pts Research and development $ 2,380 $ 2,179 9 % $ 9,300 $ 7,983 16 % Sales and marketing $ 2,818 $ 2,841 (1) % $ 10,966 $ 10,364 6 % General and administrative $ 706 $ 763 (8) % $ 2,992 $ 2,813 6 % Total R&D, sales and marketing, general and administrative $ 5,904 $ 5,783 2 % $ 23,258 $ 21,160 10 % Total as a percentage of revenue 40.2 % 42.4 % (2.2) pts 41.1 % 39.3 % 1.8 pts Restructuring and other charges included in operating expenses $ 35 $ 112 (69) % $ 744 $ 789 (6) % Operating income as a percentage of revenue 21.0 % 19.2 % 1.8 pts 20.8 % 22.6 % (1.8) pts Interest and other income (loss), net $ (88) $ (222) (60) % $ (660) $ 53 NM Income tax percentage 15.0 % 9.8 % 5.2 pts 8.3 % 15.6 % (7.3) pts Net income $ 2,550 $ 2,162 18 % $ 10,180 $ 10,320 (1) % Net income as a percentage of revenue 17.4 % 15.8 % 1.6 pts 18.0 % 19.2 % (1.2) pts Earnings per share—diluted $ 0.64 $ 0.54 19 % $ 2.55 $ 2.54 — % Percentages may not recalculate due to rounding.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Fiscal 2025 Compared with Fiscal 2024 In fiscal 2025, we delivered strong revenue growth across all geographies and solid margins as we saw a positive demand environment.
Total revenue increased by 5% compared with fiscal 2024.
Our results for fiscal 2025 include a full year of Splunk's results compared to approximately four months for fiscal 2024.
Within total revenue, product revenue increased by 6% and services revenue increased by 3%.
In fiscal 2025, total software revenue was $22.3 billion, an increase of 21%, driven by the contribution of Splunk.
Total subscription revenue increased 15%, driven by the contribution of Splunk.
Total gross margin increased by 0.2 percentage points.
Product gross margin increased by 0.2 percentage points, 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 the amortization of purchased intangible assets primarily related to Splunk.
As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses, collectively, increased by 1.8 percentage points.
Operating income as a percentage of revenue decreased by 1.8 percentage points primarily due to increases in amortization of purchased intangible assets and share-based compensation expense in fiscal 2025, and a charge in the fourth quarter of fiscal 2025 as a result of a legal dispute with a supplier.
Diluted earnings per share was flat compared with fiscal 2024.
In terms of our geographic segments, revenue from the Americas increased by $1.7 billion, EMEA revenue increased by $0.7 billion and revenue in our APJC segment increased by $0.5 billion.
From a customer market perspective, product revenue growth was led by the enterprise market and the service provider and cloud market.
The revenue increase in our service provider and cloud market was driven by AI infrastructure revenue from webscale customers.
From a product category perspective, the product revenue increased 6% year over year, driven by a growth in revenue in Security of 59%, Observability of 26%, and Collaboration of 1%, partially offset by a decline in Networking of 3%.
The product revenue growth in Security and Observability were each driven in large part by the contribution of Splunk.
We continue to operate in a highly competitive environment, and one that is complex especially with respect to tariffs and trade policy.
We plan to continue to invest in key priority areas with the objective of driving profitable growth over the long term.
We remain focused on delivering innovation across our technologies to assist our customers in executing on their digital transformations and on accelerating innovation across our portfolio.
We believe that we are making progress on our strategic priorities.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Fourth Quarter Snapshot For the fourth quarter of fiscal 2025, as compared with the fourth quarter of fiscal 2024, total revenue increased by 8%.
Within total revenue, product revenue increased by 10% and services revenue was flat.
With regard to our geographic segment performance, on a year-over-year basis, revenue in Americas increased by 9%, EMEA increased by 4% and APJC increased by 7%.
From a product category perspective, we experienced product revenue growth in Networking, Security, Observability, and Collaboration .
Total gross margin decreased by 1.2 percentage point s, driven primarily by a charge as a result of a legal dispute with a supplier.
As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses, collectively, decreased by 2.2 percentage points.
Operating income as a percentage of revenue increased by 1.8 percentage points primarily driven by lower amortization of purchased intangible assets, lower restructuring and other charges, and a decrease in cash compensation expenses from acquisitions, partially offset by a charge as a result of a legal dispute with a supplier.
Diluted earnings per share increased by 19%, primarily driven by the revenue increase and the increase in our operating margin percentage.
Strategy and Priorities In today's digital-first world, businesses and organizations globally are deploying technology to pursue their strategic objectives, from accelerating growth to enhancing operational efficiency and fostering innovation.
Business.” Other Key Financial Measures The following is a summary of our other key financial measures for fiscal 2025 compared with fiscal 2024 (in millions): Fiscal 2025 Fiscal 2024 Cash and cash equivalents and investments $16,110 $17,854 Cash provided by operating activities $14,193 $10,880 Remaining performance obligations $43,533 $41,048 Repurchases of common stock—stock repurchase program $5,995 $5,764 Dividends paid $6,437 $6,384 Inventories $3,164 $3,373 Total debt $28,093 $30,962 CISCO SYSTEMS, INC.
Variable consideration includes potential contractual penalties and various rebate, cooperative marketing and other incentive programs that we offer to our distributors, channel partners and customers that we sell to directly.
Our total provisions for inventory and the liability related to purchase commitments with contract manufacturers and suppliers were $493 million, $819 million, and $730 million in fiscal 2025, 2024, and 2023, respectively.
Third parties, including customers, have in the past and may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark, and other intellectual property rights to technologies and related standards that are relevant to us.
These assertions have increased over time as a result of our growth and the general increase in the pace of patent claims assertions, particularly in the United States.
If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and adversely affected.
In response to changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill.
There was no impairment of goodwill in fiscal 2025, 2024, and 2023.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2025 ↗, FY2026 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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