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Cisco Systems (CSCO) is trading modestly lower after reporting modest EPS upside for Q4 (Jul) last night. Revenue grew 7.6% yr/yr to $14.67 bln, which was slightly above analyst expectations. The Q1 (Oct) guidance was pretty good with upside revs and in-line EPS. We also got our first look at FY26 guidance, which was in-line. Cisco described Q4 as a solid quarter, driven by strong order growth and margins.

• Cisco noted that clients are moving into the next phase of AI with agents autonomously conducting tasks alongside humans. As a result, the capacity requirements of the network will need to accommodate both unprecedented levels of network traffic and an increasing threat landscape. Most businesses believe they need to upgrade their networks to successfully deploy AI.
• In terms of demand in Q4, Cisco saw record AI Infrastructure orders from webscale customers. These orders exceeded $800 mln in Q4 alone, bringing the total for FY25 to over $2 bln. The product mix of these orders was more than two-thirds in systems, with the remainder in optics. Recall that this is more than double its original $1 bln target announced in Q4 of last year.
• Overall, total product orders in Q4 grew 7% yr/yr, with solid growth across all geographies. Of note, Cisco closed several very large deals with major enterprises in Q4. Cisco noted that demand from telco and cable customers was also strong in Q4, with orders growing more than 20% yr/yr. Briefing.com thinks this bodes well for Ciena (CIEN), which has a lot of exposure with those customers.
• Turning to its core Networking and Security offerings, networking product orders grew double digits in Q4. Cisco says there is strong interest from customers for its new family of Cisco CAT 9K Smart Switches, along with a refreshed lineup of routers, wireless access points and industrial IoT devices. Importantly, Cisco noted that the launch of its new switches marks the beginning of a major multiyear refresh cycle opportunity for Cisco's large installed campus switching base.
• Quickly on tariffs, Cisco says there has been some clarity on tariffs, but it's still operating in a complex environment. Tariffs had only a small impact in Q4 and FY25. Cisco has not seen a lot of pull-forward of sales due to tariffs, which is pretty similar to what it said on its Q3 call. Also, its guidance assumes current tariffs remain in place through the end of FY26.

Overall, this was a solid end to FY25. The EPS/revenue upside was notably more modest that what we have seen from Cisco in recent quarters. And when you add in the modest guidance compared to upside guidance last quarter, we think this is why the stock reaction is pretty muted. Notably, Cisco does not seem overly worried about tariffs and there was not a lot of pull-forward sales. This tells us clients are still eager to build out their AI infrastructure even if the price is a bit higher. Finally, we think this report bodes well for Broadcom (AVGO, reports Sep 4), which is a key supplier to Cisco, and for peer Ciena (reports Sep 4).