# How Cisco makes money

CXProWealth Business Lens · Cisco (CSCO) · FY2026

Read from the 10-K for the period 2025-07-27 to 2026-07-25, filed 2026-09-02 with the SEC (accession 0000858877-26-000132): https://www.sec.gov/Archives/edgar/data/858877/000085887726000132/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $63.3B (+11.8% on the year)
- Operating income: $15.4B (operating margin 24.3%)
- Net income: $13.3B (net margin 21.0%)
- Gross margin: 64.5%
- Free cash flow: $12.8B (20.2% of revenue)
- Cash conversion (operating cash flow / net income): 1.07x
- Capital expenditure: 2.2% of revenue

## Where the money goes (FY2026)

- Networking → Total revenue: $34.7B
- Security → Total revenue: $8.2B
- Collaboration → Total revenue: $4.3B
- Observability → Total revenue: $1.1B
- Services → Total revenue: $15.0B
- Total revenue → Total cost of sales: $22.5B
- Total revenue → Gross margin: $40.9B
- Gross margin → Total operating expenses: $25.5B
- Total operating expenses → Research and development: $9.6B
- Total operating expenses → Sales and marketing: $11.6B
- Total operating expenses → General and administrative: $2.8B
- Total operating expenses → Amortization of purchased intangible assets: $916.0M
- Total operating expenses → Restructuring and other charges: $693.0M
- Gross margin → Operating income: $15.4B
- Operating income → Income before provision for income taxes: $15.4B
- Interest and other income (loss), net → Income before provision for income taxes: $641.0M
- Income before provision for income taxes → Provision for income taxes: $2.7B
- Income before provision for income taxes → Net income: $13.3B

## Where the revenue comes from

### Products and services (Segment Information and Major Customers - Summary of Net Revenue for Groups of Similar Products and Services (Details))

| Member | Value | Share |
|---|---:|---:|
| Networking | $34.7B | 54.7% |
| Services | $15.0B | 23.7% |
| Security | $8.2B | 13.0% |
| Collaboration | $4.3B | 6.8% |
| Observability | $1.1B | 1.7% |

The members sum to total revenue.

### Segments (Segment Information and Major Customers - Summary of Reportable Segments (Details))

| Member | Value | Share |
|---|---:|---:|
| Americas | $37.8B | 59.7% |
| Emea | $16.6B | 26.2% |
| Apjc | $8.9B | 14.1% |

The members sum to total revenue.

## Income statement, as filed

| Line | FY2026 | Of revenue |
|---|---:|---:|
| Total revenue | $63.3B | 100% |
|   Product | $48.3B | 76.3% |
|   Services | $15.0B | 23.7% |
| Total cost of sales | $22.5B | 35.5% |
|   Product | $17.8B | 28.1% |
|   Services | $4.7B | 7.4% |
| **Gross margin** | $40.9B | 64.5% |
| Research and development | $9.6B | 15.1% |
| Sales and marketing | $11.6B | 18.3% |
| General and administrative | $2.8B | 4.4% |
| Amortization of purchased intangible assets | $916.0M | 1.4% |
| Restructuring and other charges | $693.0M | 1.1% |
| **Total operating expenses** | $25.5B | 40.3% |
| **Operating income** | $15.4B | 24.3% |
| Interest income | $866.0M | 1.4% |
| Interest expense | ($1.5B) | 2.3% |
| Other income (loss), net | $1.2B | 2.0% |
| **Interest and other income (loss), net** | $641.0M | 1.0% |
| **Income before provision for income taxes** | $16.0B | 25.3% |
| Provision for income taxes | $2.7B | 4.3% |
| **Net income** | $13.3B | 21.0% |
| Basic (in dollars per share) | $3 | 0.0% |
| Diluted (in dollars per share) | $3 | 0.0% |
| Basic (in shares) | 3,953,000,000 |  |
| Diluted (in shares) | 3,987,000,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2008 | $39.5B | $9.4B | $8.1B | $12.1B | $1.3B | $10.8B |
| FY2009 | $36.1B | $7.3B | $6.1B | $9.9B | $1.0B | $8.9B |
| FY2010 | $40.0B | $9.2B | $7.8B | $10.2B | $1.0B | $9.2B |
| FY2011 | $43.2B | $7.7B | $6.5B | $10.1B | $1.2B | $8.9B |
| FY2012 | $46.1B | $10.1B | $8.0B | $11.5B | $1.1B | $10.4B |
| FY2013 | $48.6B | $11.2B | $10.0B | $12.9B | $1.2B | $11.7B |
| FY2014 | $47.1B | $9.3B | $7.9B | $12.3B | $1.3B | $11.1B |
| FY2015 | $49.2B | $10.8B | $9.0B | $12.6B | $1.2B | $11.3B |
| FY2016 | $49.2B | $12.7B | $10.7B | $13.6B | $1.1B | $12.4B |
| FY2017 | $48.0B | $12.0B | $9.6B | $13.9B | $964.0M | $12.9B |
| FY2018 | $49.3B | $12.3B | $110.0M | $13.7B | $834.0M | $12.8B |
| FY2019 | $51.9B | $14.2B | $11.6B | $15.8B | $909.0M | $14.9B |
| FY2020 | $49.3B | $13.6B | $11.2B | $15.4B | $770.0M | $14.7B |
| FY2021 | $49.8B | $12.8B | $10.6B | $15.5B | $692.0M | $14.8B |
| FY2022 | $51.6B | $14.0B | $11.8B | $13.2B | $477.0M | $12.7B |
| FY2023 | $57.0B | $15.0B | $12.6B | $19.9B | $849.0M | $19.0B |
| FY2024 | $53.8B | $12.2B | $10.3B | $10.9B | $670.0M | $10.2B |
| FY2025 | $56.7B | $11.8B | $10.2B | $14.2B | $905.0M | $13.3B |
| FY2026 | $63.3B | $15.4B | $13.3B | $14.2B | $1.4B | $12.8B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +11.8% (year before +5.3%): accelerating
- Operating income: +30.7% (year before -3.5%): accelerating
- Net income: +30.3% (year before -1.4%): accelerating
- Free cash flow: -3.9% (year before +30.1%): slowing

## Operating figures stated in the filing

- Employees: 82,400 employees (as of 2026-07-25). "As of July 25, 2026, we had approximately 82,400 employees and they are categorized as follows:" (Item 1. Business)
- Sales and marketing employees: 25,400 employees (as of 2026-07-25). "As of the end of fiscal 2026, our worldwide sales and marketing functions consisted of approximately 25,400 employees, including managers, sales representatives, and technical support personnel." (Item 1. Business)
- Hyperscaler AI infrastructure share of total revenue: 6.0% (as of 2026-07-25). "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." (Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Channel partner financing volume: $29.9B (as of 2026-07-25). "The volume of channel partner financing was $29.9 billion, $24.9 billion, and $27.1 billion in fiscal 2026, 2025, and 2024, respectively." (Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Channel partner financing volume: $24.9B (as of 2025-07-26). "The volume of channel partner financing was $29.9 billion, $24.9 billion, and $27.1 billion in fiscal 2026, 2025, and 2024, respectively." (Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Networking alone carried this year's growth

Networking rose 22.5% to $34.7B while every other line grew 3.8% or less, so this year's growth was one business, not a broad recovery.

Networking revenue was $34.7B, up 22.5%, and its share of total revenue rose 4.8 points to 54.7%. Total revenue grew 11.8% to $63.3B, so Networking supplied nearly all of the added revenue. Security grew 1.7%, Collaboration 3.5% and Observability 3.8%, while Services slipped 0.1% and lost 2.8 points of share, to 23.7%. _(from the filing)_
The filing credits the Networking gain mainly to AI Infrastructure solutions built on Cisco Silicon One systems and optics, with double-digit growth in service provider routing, data center switching, wireless and servers, and growth in campus switching. Hyperscaler AI infrastructure was about 6% of total revenue, by the company's own estimate. _(from the filing)_
Analysis: the mix moved toward hardware sold in large orders to a few buyers, and away from the services and software that renew. Security and Observability, both built up through acquisitions to make Cisco more of a software company, grew 1.7% and 3.8%. Revenue rose faster than the recurring base under it, which makes next year's revenue harder to read from this year's. _(analysis)_

### Flat costs turned 11.8% growth into 30.7%

Operating expenses rose 1.9% against revenue growth of 11.8%, so operating income rose 30.7% even though gross margin slipped 0.41 points.

Gross margin dollars rose 11.1% to $40.9B, while total operating expenses rose 1.9% to $25.5B, so their share of revenue fell 3.9 points to 40.3%. R&D rose 2.8%, sales and marketing 5.4%, and general and administrative fell 7.7%. Operating income reached $15.4B and operating margin rose 3.5 points to 24.3%. More than half of the added revenue reached operating income. _(from the filing)_
The gain built through the year. Operating margin was 22.6% in the first quarter and 24.7% in the fourth, as quarterly revenue rose from $14.9B to $17.3B. The filing attributes the margin increase primarily to revenue growth, partly offset by lower gross margin and higher operating expenses. _(from the filing)_
In FY2019, operating margin was 27.4% on a gross margin of 62.9%. Gross margin is higher now, at 64.5%, so the gap to that level sits in the operating cost base, which this year's leverage only partly closed. _(from the filing)_
Analysis: leverage of this kind works in both directions. The cost base is set ahead of demand, and Cisco is reshaping it again with a restructuring plan announced in the fourth quarter to fund silicon, optics, security and AI; restructuring and other charges were $693M after $744M last year. If Networking orders slow, expenses that barely grew on the way up would not shrink as quickly on the way down. _(analysis)_

### Net income rose 30.3%, free cash flow fell

Free cash flow fell to $12.8B from $13.3B while net income rose 30.3%, as supplier payments and capital spending absorbed the profit gain.

Operating cash flow was $14.2B in both years, $14,177M against $14,193M, while net income rose 30.3% to $13.3B. Cash conversion, operating cash flow divided by net income, fell to 1.07. Capital spending rose to $1.41B from $905M, and free cash flow fell to $12.8B from $13.3B. _(from the filing)_
The filing attributes flat operating cash flow to higher cash collections, offset by higher payments to contract manufacturers and suppliers and by the final payment of the one-time U.S. transition tax on foreign subsidiaries' accumulated earnings under the Tax Act. _(from the filing)_
The quarters show the strain. In the second quarter, operating cash flow was $1.8B against net income of $3.2B; in the fourth, it was $5.4B against $3.9B. For the year, free cash flow was 20.2% of revenue, against a net margin of 21.0%. _(from the filing)_
Analysis: part of the gap is timing. The transition tax does not recur, and payments made to suppliers ahead of AI shipments can turn back into cash if the products ship and are paid for. The open part is whether the demand those payments were made for arrives on the schedule they assume. _(analysis)_

### A private-stake gain offset a higher tax rate

Net income grew 30.3%, in step with operating income, because a $1,245M investment gain offset a tax rate that rose from 8.3% to 17.1%.

Other income swung from a $68M loss to a $1,245M gain, which the filing attributes mainly to unrealized gains on non-marketable equity securities, its stakes in privately held companies. That lifted income before taxes 44.2%, against 30.7% for operating income. The gain equals 7.8% of income before taxes. _(from the filing)_
The provision for income taxes rose to $2.7B from $920M, taking the effective rate from 8.3% to 17.1%. The filing attributes the rise mainly to a one-time tax benefit last year from a U.S. Tax Court opinion, and to a valuation allowance against California deferred tax assets this year. _(from the filing)_
Analysis: in growth terms the two items roughly cancelled, so net income and diluted earnings per share, $3.33 against $2.55, tracked operating income. Neither item is a steady guide. The filing notes that gains on private stakes depend on future financing rounds at varying valuations, which makes operating income the cleaner measure of this year's progress. _(analysis)_

### Competitive edge

- **Owns the chip design, rents the factories** Contract manufacturers build Cisco's systems, so capital spending is 2.2% of revenue against a 64.5% gross margin and a 20.2% free cash flow margin.
- **Support contracts ride on the installed base** Services brought in $15.0B, 23.7% of revenue, at a cost of 31.2% of that revenue, renewing for the life of installed gear.
- **Partners sell it, financing helps close it** Channel partner financing reached $29.9B, equal to 47.2% of revenue, letting resellers and customers spread large infrastructure purchases over time.

### What to watch

- **A few cloud buyers now move the results** Hyperscaler AI infrastructure reached about 6% of revenue, bought in large, lumpy orders by a few customers able to build their own equipment.
- **Supply committed well ahead of the orders** Cisco secured Silicon One and memory supply ahead of expected hyperscaler demand, so a delay or design change could turn into inventory charges.
- **The growth mix is diluting gross margin** Cost of sales rose 13.1% against revenue's 11.8%, cutting gross margin 0.41 points, and the filing warns product margin may not be sustainable.

## Investor view

**Networking grew 22.5% on hyperscaler AI demand while operating costs barely moved, so most of the new revenue reached operating profit**

### How it makes money

Cisco sells the equipment and software that networks run on, then charges to keep it running. Of $63.3B in revenue this year, Networking (switches, routers, wireless, servers and optics) brought in $34.7B, or 54.7%. Services, mostly technical support and professional services over the life of installed gear, brought in $15.0B, or 23.7%. Security added $8.2B, Collaboration $4.3B and Observability $1.1B. _(from the filing)_
Cisco designs the hardware and others build it. Its switches and routers run largely on its own Cisco Silicon One chips, while assembly and testing are done by contract manufacturers with no significant long-term contracts. That keeps the business light on fixed assets: capital spending was $1.4B this year, 2.2% of revenue, against a gross margin of 64.5%. _(from the filing)_
Most of it is sold by others. The filing says "A substantial portion of our products and services is sold indirectly through channel partners": systems integrators, service providers, resellers and two-tier distributors. Cisco keeps about 25,400 sales and marketing staff, 30.8% of its 82,400 employees, and spent $11.6B on sales and marketing, 18.3% of revenue. _(from the filing)_
Money is part of the offer. Cisco Capital lends and leases to customers buying hardware, software and services, and third parties fund channel partners' working capital, with Cisco carrying part of that credit risk. Channel partner financing volume was $29.9B this year against $24.9B last year, equal to 47.2% of revenue. The company calls customer financing "a competitive advantage in obtaining business and enabling sales". _(from the filing)_

### What shifted

Growth came from one place. Networking rose 22.5% and its share of revenue rose 4.8 points to 54.7%; the filing credits AI infrastructure built on Silicon One systems and optics, with campus networking also growing. Hyperscaler AI infrastructure reached "approximately 6% of total revenue". Security grew 1.7%, Collaboration 3.5% and Observability 3.8%, while Services slipped 0.1% and lost 2.8 points of share, to 23.7%. _(from the filing)_
The new mix costs more to build. Cost of sales rose 13.1%, faster than revenue's 11.8%, and gross margin slipped 0.41 points to 64.5%. Cost of product sales went from $15.1B to $17.8B. The filing names product mix, "primarily due to higher Networking revenue", and higher memory costs, partly offset by productivity, pricing, lower amortization and the absence of last year's charge from a supplier dispute. _(from the filing)_
Expenses held almost still. Total operating expenses rose 1.9% to $25.5B, so their share of revenue fell 3.9 points to 40.3%. R&D rose 2.8%, sales and marketing 5.4%, and general and administrative fell 7.7%. Operating income rose 30.7% to $15.4B and operating margin rose 3.5 points to 24.3%. Quarter by quarter, operating margin went from 22.6% in the first quarter to 24.7% in the fourth. _(from the filing)_
Below operating income, two items pulled in opposite directions. Other income swung from a $68M loss to a $1,245M gain, which the filing attributes mainly to unrealized gains on privately held equity stakes. The tax provision rose from $920M to $2.7B after a one-time tax benefit last year, taking the effective rate from 8.3% to 17.1%. Net income rose 30.3% to $13.3B and diluted earnings per share went from $2.55 to $3.33. _(from the filing)_
Cash did not follow profit. Operating cash flow was $14.2B in both years and free cash flow fell to $12.8B from $13.3B, as capital spending rose to $1.4B from $905M. Operating cash flow was 1.07 times net income this year, and free cash flow, which ran above net income last year, fell below it. The filing points to higher payments to contract manufacturers and suppliers and the final payment of a one-time transition tax. _(from the filing)_

### Risks in the filing

Concentrated, volatile cloud demand. Sales of AI infrastructure to cloud and hyperscaler customers come as large purchases from a limited number of buyers, who can delay, cut or cancel deployments, build the technology themselves, or choose a rival architecture. Some products have bespoke designs that the company says would be difficult to sell to other customers if the main buyer stopped ordering. _(from the filing)_
Supply bought ahead of demand. Cisco has signed additional purchase commitments and prepayments for Silicon One, memory and other components to meet expected hyperscaler demand, and says these "significantly increased our supply chain exposure". If demand falls, is delayed or shifts, it could face excess inventory, losses on commitments and prepayments it cannot recover. It also expects rising costs for constrained memory to keep weighing on results. _(from the filing)_
Margins that may not hold. The company states that its "level of product gross margin may not be sustainable", citing product mix, component and memory costs, tariffs, discounting, growth in lower-margin markets, and price competition from vendors in Asia, especially China. _(from the filing)_
Competition from customers and from new architectures. White-box hardware on commodity components, cloud providers, chip companies and large customers designing their own equipment all compete with Cisco. The filing notes that when customers adopt an architecture not built around its products, its opportunities "may be limited even if our products are superior". _(from the filing)_
The numbers already show two of these risks. The mix pressure is visible: Networking's share rose and gross margin fell with it. The supply exposure shows up in cash rather than profit: net income rose while free cash flow fell, as payments to suppliers ran ahead of shipments. Customer concentration does not yet appear in any single reported figure beyond the company's own estimate of hyperscaler share. _(analysis)_

## Founder view: mechanisms

### Support contracts on an installed base

Every switch, router and firewall Cisco ships creates a customer who needs that gear to stay up. Cisco sells technical support, software updates and hardware replacement alongside the box, so each sale starts a stream of renewals that runs for the life of the equipment. Support needs far less new engineering per dollar than new products do, which is why it carries a higher margin than hardware. _(analysis)_

### Revenue growth on a near-flat cost base

Cisco's operating costs, its engineers, sellers and overhead, are set well ahead of demand. When a demand wave arrives, most of the extra gross profit falls through to operating income because the cost base does not grow with it. Cisco reinforces this by restructuring repeatedly, cutting in some areas to fund silicon, optics, security and AI, so total spending stays roughly level while its mix changes. _(analysis)_

### Own the chip, rent the factory

Cisco designs its own networking silicon and software, and pays contract manufacturers to build the systems. The intellectual property stays in-house; the factories, labor and most of the capital do not. The trade-off is that capacity has to be reserved and components bought ahead of demand, so the risk moves from fixed assets on the balance sheet to inventory and purchase commitments. _(analysis)_

### Partners sell it, financing closes it

Cisco reaches most customers through integrators, service providers and distributors rather than its own sellers, and it eases those channels with money: third-party financing for partners' working capital, sometimes backed by a Cisco guarantee, and loans and leases from Cisco Capital for end customers. Financing turns a large up-front infrastructure purchase into a series of payments, which helps deals close. _(analysis)_

## Member research

Signed-in members read, on the page: what Cisco's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Cisco 10-K for the period to 2026-07-25: https://www.sec.gov/Archives/edgar/data/858877/000085887726000132/ (2026-09-02)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02