Cisco Raises FY2027 Outlook as Revenue Climbs 24% to $18.5 Billion

Cisco raised its fiscal 2027 revenue outlook by $2.5 billion after first-quarter revenue rose 24% year over year to $18.5 billion. The company posted its strongest revenue and earnings growth rates in more than 15 years, driven by networking equipment demand and artificial intelligence infrastructure.

Adjusted earnings per share climbed 40% to $1.40. Both figures beat the high end of guidance, CFO Mark Patterson said on the earnings call. The quarter evidently went well; the numbers make the point without rhetorical assistance.

What changed in the guidance?

Cisco now expects fiscal 2027 revenue of $74.8 billion to $75.8 billion, with adjusted earnings of $5.47 to $5.53 per share. Patterson said the $2.5 billion revenue raise includes $1.5 billion from hyperscale customers (operators of vast cloud data centers) and $1 billion from the rest of the business.

The company lifted its fiscal 2027 AI infrastructure revenue forecast from hyperscalers to $9 billion, up from $7.5 billion and more than double the prior year's level. Chair and CEO Chuck Robbins attributed the increase to continued customer demand and greater visibility into the year.

How deep is the AI pipeline?

Robbins said Cisco secured three new AI design wins in the quarter: two for P200-powered systems that connect data centers and extend workloads across them, and one for 1.6-terabit optics in a scale-out application. The company has recorded 18 AI design wins over the past five quarters.

The $9 billion forecast includes hyperscalers but excludes neocloud customers, Robbins said. He characterized neocloud exposure as relatively immaterial and said Cisco has been conservative about credit risk.

Robbins described the opportunity as an early-stage, multiyear networking cycle. He cited hyperscale deployments, campus network upgrades, sovereign infrastructure and enterprise investment in hybrid data centers among the drivers.

The evidence supports him, for now. Campus networking product orders rose 14% year over year, yet only 9% of switching sold in the quarter came from Cisco's new portfolio, which Robbins called proof that the refresh cycle remains early.

What do the order books show?

Total product orders increased 21% from a year earlier, or 14% excluding hyperscalers. Networking product orders rose 28%, the ninth consecutive quarter of double-digit growth.

By customer group: service provider and cloud orders rose 47%, enterprise orders increased 15%, and public sector orders grew 13%. Geographically, orders rose 18% in the Americas, 12% in Europe, the Middle East and Africa, and 57% in Asia Pacific, Japan and China.

Networking revenue increased 43%, led by triple-digit growth in AI infrastructure and double-digit growth in data center switching and campus networking. Security revenue rose 7%, collaboration revenue increased 8%, and services revenue edged up 1% to $3.9 billion.

Security product orders excluding Splunk rose 15%, which Robbins said was the best growth rate in roughly three years. Firewall orders grew more than 30% for a third consecutive quarter. Patterson said first-quarter security revenue met or slightly exceeded expectations, with improvement expected as the year progresses.

What happened to margins?

Adjusted gross margin fell 250 basis points (2.5 percentage points) year over year to 65.6%, as hardware revenue outgrew software and services. Product gross margin declined 350 basis points to 63.7%, on higher hardware mix and elevated memory costs, partly offset by productivity gains and price increases.

Patterson said Cisco is comfortable with full-year adjusted gross margin just below 65%, citing long-term supply agreements, price increases and productivity improvements against component-cost pressure.

For the fiscal second quarter, Cisco forecast revenue of $18 billion to $18.2 billion, adjusted earnings of $1.34 to $1.36 per share, adjusted gross margin of 65% to 66%, and adjusted operating margin of 36% to 37%.

Operating cash flow rose 36% to $4.4 billion. Cisco returned $3.7 billion to shareholders through dividends and buybacks, with $6.1 billion remaining under its repurchase program. Growth costs margin; shareholders, at least, received their dividend on time.