Cisco Systems (NASDAQ:CSCO) shares fell in premarket U.S. trading Thursday after the networking heavyweight reported a quarterly gross margin that came in below Wall Street expectations.
A member of the Dow Jones Industrial Average, Cisco supplies a broad portfolio of networking products and services—from routers and switches to wireless access points and controllers—used by enterprises to build and manage digital infrastructure. The company is also considered a key enabler for businesses deploying artificial intelligence systems, as demand for AI-ready data center infrastructure drives orders for its core hardware.
However, a surge in global spending on AI-focused data centers has tightened the supply of memory chips, pushing up component costs. That dynamic has weighed on Cisco’s profitability, as many of its products rely on these processors.
Adjusted gross margin for the fiscal second quarter came in at 67.5%, below analyst expectations of 68.14%, according to LSEG data cited by Reuters.
“We did not think memory would have had this level of weakness, and believe maybe the mix of optics and AI switches could be having an impact,” analysts at Barclays said in a research note.
During the post-earnings call, CEO Chuck Robbins said Cisco has already implemented price increases and is revising customer contracts to offset higher input costs. He added that demand remains solid, with AI-related orders now expected to exceed $5 billion in the current fiscal year.
For the quarter, Cisco reported earnings of $1.04 per share on revenue of $15.35 billion, beating analyst estimates of $1.02 per share and $15.11 billion in revenue.
Looking ahead, the company projected third-quarter earnings between $1.02 and $1.04 per share on revenue of $15.4 billion to $15.6 billion. For fiscal 2026, Cisco now expects full-year earnings per share of $4.13 to $4.17 and revenue in the range of $61.2 billion to $61.7 billion.