Cisco’s Quarterly Earnings Miss Expectations
On February 11, Cisco Systems announced its quarterly adjusted gross profit, which fell below market predictions. As a result, shares dropped 7% in pre-market trading on Thursday. The decline comes as the company faces challenges due to rising global memory chip prices.
The surge in demand for artificial intelligence infrastructure, driven by major tech players like OpenAI, Alphabet, and Microsoft, has depleted the global supply of memory chips. This has consequently increased prices, as manufacturers tend to prioritize data center components over consumer devices.
Cisco plays a vital role by supplying high-speed networking infrastructure that supports data centers running AI applications, including various switches and routers equipped with multiple memory types.
“While strong demand and revenue growth were definitely highlights for Cisco this quarter, margin compression took away some of the positive aspects,” noted Jake Behan, who leads capital markets at Direxion. “Going forward, how Cisco can convert its backlog into actual revenue will be crucial in the latter half of the year.”
The network equipment manufacturer recorded a second-quarter adjusted gross margin of 67.5%, which is lower than the analysts’ average estimate of 68.14%, based on data from LSEG.
In light of the recent memory price increases, Cisco has adjusted its own prices and modified contract terms with partners and customers, according to CEO Chuck Robbins on a call with investors. The company’s stock has risen over 11% this year, following a 30% increase in 2025, as investors remain optimistic about the prospects of its data center networking products benefiting from robust AI spending.
Robbins also mentioned, “Given the strong demand for our Silicon One systems and optics, we anticipate over $5 billion in AI orders and more than $3 billion in AI infrastructure revenue from hyperscalers in fiscal 2026.”
Looking ahead, Cisco now projects its 2026 revenue to fall between $61.2 billion and $61.7 billion, upgrading its earlier forecast of $60.2 billion to $61 billion.
The company announced total revenue of $15.35 billion for the quarter ending on January 24, surpassing analysts’ average expectations of $15.12 billion.
