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Introduction & Market Context
Cisco Systems Inc. (NASDAQ:CSCO) reported strong financial results for its third quarter of fiscal year 2025, with revenue growing 11% year-over-year to $14.1 billion and non-GAAP earnings per share reaching $0.96, exceeding analyst expectations of $0.92. The networking giant’s stock rose 2.79% in after-hours trading following the May 14 earnings release, reflecting investor confidence in the company’s performance and outlook.
The quarter was marked by significant momentum in artificial intelligence initiatives, strategic partnerships, and solid performance across all geographic regions, with product orders growing 20% year-over-year (9% excluding the Splunk (NASDAQ:SPLK) acquisition).
Quarterly Performance Highlights
Cisco delivered robust financial results across key metrics in Q3 FY25. The company reported total revenue of $14.1 billion, representing an 11% increase compared to the same period last year. Non-GAAP earnings per share came in at $0.96, while profitability remained strong with a gross margin of 68.6% and operating margin of 34.5%.
As shown in the following breakdown of revenue by geographic region:
The Americas region led revenue generation with $8.38 billion and a 67.7% gross margin, followed by EMEA (Europe, Middle East, and Africa) with $3.74 billion and a 71.2% gross margin, and APJC (Asia Pacific, Japan, and China) with $2.03 billion and a 67.2% gross margin.
Revenue growth was particularly strong across several product categories, with Security showing exceptional performance at 54% year-over-year growth, largely driven by the Splunk acquisition. Observability grew 24%, while Networking, the company’s largest segment, increased by 8%.
The following chart illustrates revenue performance by category:
Product orders grew 20% year-over-year, or 9% excluding Splunk, with the Americas region showing the strongest growth at 27% (12% excluding Splunk). By customer segment, Service Provider & Cloud demonstrated the most robust growth at 32% (27% excluding Splunk).
Strategic AI Initiatives
Artificial intelligence emerged as a key growth driver for Cisco during the quarter, with the company reporting over $600 million in AI infrastructure orders. This momentum aligns with CEO Chuck Robbins’ statement during the earnings call that "We believe the AI opportunity for us is strong."
Cisco’s strategic AI initiatives include several high-profile partnerships and investments, as detailed in the following slide:
The company joined HUMAIN (Saudi Arabia’s AI enterprise) as a founding partner, participated in the AI Infrastructure Partnership (AIP) alongside BlackRock (NYSE:BLK), Microsoft (NASDAQ:MSFT), and NVIDIA (NASDAQ:NVDA), and extended its partnership with G42 to advance AI innovation in the UAE. These initiatives position Cisco to capitalize on the growing demand for AI infrastructure and solutions globally.
Cisco’s approach to accelerating AI adoption spans multiple areas, from AI training infrastructure to inference, connectivity, software platforms, and services:
The company is strategically integrating AI capabilities across its product portfolio, with AI assistants in Security and Collaboration solutions, while also leveraging AI to enhance customer value through its service offerings.
Detailed Financial Analysis
Cisco’s financial performance demonstrated strength across multiple metrics. The company’s non-GAAP income statement highlights include revenue of $14.15 billion, gross margin of 68.6%, operating expenses of $4.82 billion, and net income of $3.83 billion, resulting in earnings per share of $0.96.
Recurring revenue streams showed continued growth, with Annualized Recurring Revenue (ARR) reaching $30.6 billion, up 5% year-over-year. Product ARR stood at $16.8 billion, while Services ARR was $13.9 billion.
Remaining Performance Obligations (RPO), representing future revenue under contract, grew 7% year-over-year to $41.7 billion, with short-term RPO at $21.1 billion and long-term RPO at $20.6 billion.
Cisco maintained a strong cash position with $15.64 billion in cash, cash equivalents, and investments. The company generated $4.06 billion in operating cash flow and returned $3.13 billion to shareholders through $1.50 billion in share repurchases (25 million shares at an average price of $59.78) and $1.63 billion in dividends ($0.41 per share).
Forward-Looking Statements
Looking ahead, Cisco provided guidance for both the fourth quarter and full fiscal year 2025. For Q4 FY25, the company expects:
Revenue is projected to be between $14.5 billion and $14.7 billion, with non-GAAP gross margin between 67.5% and 68.5%, operating margin between 33.5% and 34.5%, and earnings per share between $0.96 and $0.98.
For the full fiscal year 2025, Cisco forecasts:
Total (EPA:TTEF) revenue is expected to reach between $56.5 billion and $56.7 billion, with non-GAAP earnings per share between $3.77 and $3.79.
The company noted potential headwinds from tariffs, including China tariffs at 30% and Mexico and Canada tariffs at 25%, which could impact margins in the coming quarter. Despite these challenges, Cisco’s guidance reflects confidence in continued growth, particularly in AI-related segments.
Conclusion
Cisco’s Q3 FY25 results demonstrate the company’s successful execution of its strategic initiatives, particularly in artificial intelligence, while maintaining strong financial performance across its core business segments. With robust product orders, expanding partnerships, and growing recurring revenue streams, Cisco appears well-positioned to capitalize on emerging opportunities in AI infrastructure and enterprise technology.
While potential tariff headwinds present challenges for the upcoming quarter, the company’s positive guidance for both Q4 and the full fiscal year suggests continued confidence in its growth trajectory. Investors responded favorably to the results, as evidenced by the 2.79% increase in after-hours trading, bringing the stock price to $63.00.
Full presentation:
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