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To: Johnny Canuck who wrote (70689)	2/12/2026 2:48:58 AM
From: Johnny Canuck	Respond to of 70695

summarize the transcript: gurufocus.com Gemini said Cisco Systems reported its fiscal second-quarter 2026 results on February 11, 2026, delivering record revenue and exceeding its own guidance. The call focused heavily on the company's accelerating role in AI infrastructure and a major campus networking refresh cycle. Financial Highlights Revenue: $15.3 billion, up 10% year-over-year (a record for Q2). Non-GAAP EPS: $1.04, up 11% year-over-year, beating the consensus estimate of $1.02. Operating Margin: Non-GAAP operating margin was 34.6%, above the high end of guidance. Product Orders: Grew 18% overall, with networking-specific orders up more than 20%. Dividend: Increased by 2% to $0.42 per share. Core Business Performance Networking (The Standout): Revenue grew 21% to $8.29 billion. This was driven by two main factors: AI Infrastructure: Massive demand from hyperscalers for Cisco’s "Silicon One" chips and optics. Campus Refresh: A multi-year cycle where enterprises are upgrading their physical network infrastructure. Security: Revenue was down 4% ($2.0 billion). Management attributed this to the transition from legacy on-premise products to cloud-native subscriptions (specifically involving the Splunk integration). Collaboration: Revenue rose 6%, led by double-digit growth in collaboration devices. Services: Revenue dipped slightly (1%) to $3.7 billion. AI & Future Strategy AI Order Surge: AI infrastructure orders from hyperscalers hit $2.1 billion in Q2 alone—matching the total for all of fiscal 2025. Fiscal 2026 AI Outlook: Management raised its full-year target, now expecting AI orders to exceed $5 billion and recognized AI revenue to exceed $3 billion. Product Innovation: Cisco highlighted the launch of the G300 chip and new 1.6 Tbps pluggable optics. CEO Chuck Robbins noted that the company is "selling as much as we can build" regarding high-end data center switches. Challenges & Headwinds Gross Margin Pressure: Non-GAAP gross margin fell 120 basis points to 67.5%. This was due to a less favorable product mix and rising memory costs. Tariffs: Management noted that the 2026 guidance accounts for current U.S. trade policies and tariffs, which have increased component costs. Cash Flow: Operating cash flow dropped 19% to $1.8 billion, impacted by a large final transition tax payment and heavy investments in AI inventory. Guidance Q3 2026: Revenue expected between $15.4 billion and $15.6 billion; Non-GAAP EPS of $1.02 to $1.04. Full Year 2026: Revenue guidance set at $61.2 billion to $61.7 billion; Non-GAAP EPS of $4.13 to $4.17. Summary Sentiment: Management is highly confident, positioning Cisco as a "critical infrastructure provider for the AI era." While legacy segments and margin pressures from component costs are minor drags, the surge in AI-related networking is currently the primary growth engine. You said summarize in detail the analysts questions with a focus on the margins on products, new products and growth of new and existing products, what percent of growth is hyperscalar related, number of customer and related percentage of revenues of each customer etc ... Gemini said During the Q2 2026 earnings call, analysts focused heavily on the sustainability of Cisco’s AI momentum, the impact of component costs on margins, and the non-linear nature of hyperscaler spending. 1. Margins on Products Analysts pressed management on the 120-basis-point decline in non-GAAP gross margin (67.5%). The Cause: Management identified higher memory costs and an unfavorable product mix as the primary culprits. Specifically, the surge in AI infrastructure sales—which involve high-volume silicon and optics—carries a different margin profile than high-margin software or legacy enterprise switching. Management Response: To counteract these pressures, Cisco has already implemented price increases and is revising contractual terms with channel partners and customers to better reflect evolving component costs. CFO Mark Patterson noted that while they are managing these headwinds, they expect near-term margin pressure to persist, guiding Q3 gross margins to a lower range of 65.5% to 66.5%. 2. New Products & Product Growth Analysts inquired about the revenue contribution of newly announced hardware and the "refresh cycle" in campus networking. New AI Chips & Optics: Cisco highlighted the G300 chip (102.4 Tbps switching) and new 1.6 Tbps pluggable optics. Growth Status: CEO Chuck Robbins clarified that the $5 billion AI order target for FY26 does not yet include the G300 or the P-200 chips; these are viewed as drivers for late FY26 and FY27. Acacia: The Acacia optical business saw "triple-digit growth" in bookings, which analysts noted as a key indicator of hyperscaler data center interconnect (DCI) demand. Existing Portfolios: Networking (up 21%): Driven by a "multi-year, multi-billion-dollar campus refresh cycle." Customers are upgrading older infrastructure to handle AI workloads at the edge. Security (down 4%): Analysts questioned the weakness here. Management explained it as a transition: legacy on-premise product revenue is falling while cloud-native subscriptions (XDR, Hypershield, and Splunk) are ramping up but not yet offsetting the decline. 3. Hyperscaler Growth & Revenue Concentration A major point of discussion was the "lumpiness" of the AI business. Hyperscaler Contribution: AI infrastructure orders from hyperscalers reached $2.1 billion in Q2. To put this in perspective, this single quarter's orders equaled the entirety of fiscal year 2025. Percentage of Growth: Excluding hyperscalers, product orders grew 10%. With hyperscalers included, total product orders grew 18%. This implies that hyperscaler demand accounted for nearly half (roughly 44%) of the total order growth rate this quarter. The "Non-linear" Warning: Management warned analysts that hyperscaler revenue is "non-linear" and "lumpy." Because the customer base is highly concentrated among a small number of "Big Tech" players, a single large deployment can swing quarterly results significantly, making traditional seasonal comparisons less reliable. 4. Customer Metrics & Revenue Percentages While Cisco does not typically name specific customers in earnings calls due to confidentiality, they provided detailed growth by customer segment: Service Provider & Cloud: Orders grew 65%, driven by "triple-digit growth" in hyperscaler orders. Public Sector: Orders grew 11%, showing stability in government spending globally. Enterprise: Orders grew 8%, supported by the campus networking refresh. Telco & Cable: Combined orders grew ~20%, showing a recovery in a sector that had been stagnant in previous years. Subscription Revenue: Now represents 51% of total revenue ($7.8 billion), as the company continues its shift toward software-defined networking. Analyst Sentiment: The "Q&A" reflected a "wait and see" attitude regarding the stock. While the AI numbers were massive, analysts expressed concern that the rising cost of goods (memory/tariffs) and the volatility of hyperscaler deals might make earnings growth less predictable in the second half of 2026.