Cisco Q3 2025 earnings: AI spending resisted tariff uncertainty

“They're going to continue to spend [on AI] until they just absolutely have to stop,” Cisco CEO said

Cisco Systems joined the ranks of other technology vendors reporting no negative effects in recent quarterly earnings from economic uncertainty and global tariff spats, with networking giant seeing continued customer investment in AI and maintaining its revenue forecast for the current fiscal quarter.

CEO Chuck Robbins told analysts during the vendor’s fiscal 2025 third quarter earnings call on Wednesday that for customers, “the AI transition is just so important that they're going to continue to spend until they just absolutely have to stop.”

“We haven't seen any customers really fundamentally slowing down,” Robbins said.

“They're still committed to the technology transition.”

Cisco Q3 2025

CFO Scott Herren - who plans to retire at the end of the fiscal year - said channel partners have reported that no customers are delaying projects and that the vendor’s fiscal fourth quarter guidance takes into account uncertainty over what happens to non-China tariffs after Donald Trump’s 90-day pause ends 9 July.

Herren said channel partners reported no customers making orders early to avoid future price increases due to tariffs, which could have pulled forward revenue that the California-based company would have generated next quarter.

The earnings call covered the three months ended 26 April.

“We looked at channel inventory, which you would think would go up,” he said.

“It did not. It actually was down.”

Vendors including IBM, Microsoft and Google have also reported growing AI demand and sustained revenue growth during the quarter despite uncertainty created by the Trump administration’s rapidly shifting tariff policies.

Tariff, DOGE impacts

Herren said Cisco’s on-hand webscale product inventory went down during the quarter.

The time between Meraki product shipment and activation remained at pre-pandemic levels.

Pipeline and customer requests for future ship dates also showed “nothing out of the ordinary.”

Although Elon Musk’s cost-cutting Department of Government Efficiency (DOGE) wasn’t explicitly named on the call, when asked about Cisco’s public sector business, Robbins said that he was pleased with the division’s performance: eight per cent growth year-on-year and three per cent globally in organic growth.

The US federal business saw double-digit order growth in the quarter.

“There still continues to be stress on the civilian side, obviously, with agencies that have been shut down, with employees who are worried about their jobs, there's a lot of just human capital concern on the civilian side,” Robbins said.

“But it's also important to remember that that's about a quarter of our federal business.

“75 per cent of it is intelligence and the Department of Defence.”

On Cisco’s forecast for the fiscal 2025 fourth quarter, Herren said he factored in “a small impact on us for the tariffs on steel and aluminium,” but hasn’t “broken out and quantified the dollar value that goes with that, because the puck keeps moving on this.”

He said that over the fourth quarter, Cisco “assumes current tariffs and exemptions remain in place,” with “China at 30 per cent, partially offset by an exemption for semiconductors and certain electronic components; Mexico and Canada at 25 per cent for the components and products that are not eligible for the current USMCA (US-Mexico-Canada Agreement) exemptions,” the CFO said.

Herren is also assuming that other countries keep a base ten per cent tariff rate until 9 July, reverting to country-specific tariffs offset by the semiconductor and electronic components exemption.

“We'll continue to leverage our world-class supply chain team to help mitigate the impact where appropriate through the flexibility and agility we have built into our operations over the last few years,” he said.

“The size and scale of our supply chain provides us some unique advantages as we support our customers globally.”

Should global tariffs spark increased infrastructure and manufacturing investment in the US, Robbins said that “Cisco is well-positioned to help connect and protect these capital-intensive investments at scale.”

Year-to-date orders for Cisco’s industrial internet of things (IoT) portfolio grew 35 per cent year-on-year during the quarter.

Agentic AI fuels networking orders

Cisco reported that networking product sales grew eight per cent year-on-year to $7bn (£5.27bn) in revenue.

The vendor saw double-digit growth in switching and enterprise routing products and triple-digit sequential growth in orders for Wi-Fi 7.

Customers invested in modernising their infrastructure, with the network seen as key for achieving real-time benefits from AI agents.

“While they may not know exactly what those applications are going to look like right now, they absolutely know they're going to need the most modern networks they can have,” Robbins said.

Looking ahead, Cisco is focused on embedding security into the network, with customers expressing interest in removing physical firewalls from their infrastructure.

Spending on networking and datacentre-related Cisco wares to meet cloud and AI demands will continue beyond 2025 globally, Robbins said.

“I don't anticipate that 2025 is going to be a peak year,” he said. “This has many years to run.”

Once public cloud infrastructure for training is built out, enterprises will spend on their own datacentres to perform AI inferencing, Herren added.

Customers also are moving from the InfiniBand standard to Ethernet for running AI training models, Robbins said.

Cisco chips progress

Webscale customers ordered more than $600m in AI infrastructure, leading to Cisco passing its $1bn target a quarter early.

The vendor reported about $350m in orders the prior quarter.

“The $1bn target was really to give you all more confidence that we were serious in this space,” Robbins told analysts.

“The results have now said that these customers are taking us seriously.”

Cisco executives on the call told analysts that the newly announced deal with Saudi Arabia’s HUMAIN AI initiative did not count toward the $600m in AI infrastructure deals and that the $1bn is a sales target with revenue coming in the second half of the year.

About two-thirds of the AI infrastructure orders during the quarter were for systems based on the Cisco Silicon One G200 processor.

The rest were in optics.

“Those customers are telling us that if we could get more capacity out, they would buy more,” Robbins said.

“It's actually doing well right now and we've got a number of other chips that are in various stages of the process for next-generation platforms that we're also looking forward to.”

The CEO said that Cisco’s silicon investments are a differentiator, with customer orders requiring fast execution.

“At the end of the day, if we didn't have the silicon, it would probably make it virtually impossible for us to be successful long term here,” he said.

“If we miss with these customers, then we sit on the sidelines for a while.”

Enterprise AI orders, while hard to separate out from other data, have seen an acceleration “in the hundreds of millions of dollars, not in the billions yet,” he said.

When asked about Cisco’s Nvidia partnership, Robbins said that most of the vendors’ joint offers will start rolling out in about 60 days.

Cisco continues to see a lack of demand for co-packaged optics (CPO) Silicon One offers, Robbins said. “As soon as customers are asking for it, we will be first in market, ready to deliver it,” he said.

Q3 in detail, Q4 guidance

Cisco reported product orders up 20 per cent year-on-year including Splunk.

Without Splunk, orders grew nine per cent.

By customer market, service provider and cloud order grew 32 per cent year-on-year, and enterprise grew 22 per cent.

Cisco reported $14.1bn in revenue for the quarter, up 11 per cent year-on-year.

Net income using generally accepted accounting principles (GAAP) was $2.5bn.

GAAP operating income was $3.2bn, up 46 per cent.

Product revenue grew 15 per cent year-on-year to $10.4bn.

Services revenue grew three per cent to $3.8bn.

Within product revenue, security products portfolio sales grew 54 per cent year-on-year to $2bn.

Splunk performed “slightly ahead of” Cisco’s expectations on revenue and profitability, Herren said.

Cisco’s secure access, extended detection and response (XDR) and Hypershield security products collectively added more than 370 new customers in the quarter.

Observability grew 24 per cent year-on-year to $261m.

The collaboration portfolio - which includes Webex - grew four per cent year-ob-year to $1bn.

Total ARR was $30.6bn at the end of the quarter, up five per cent year-on-year.

Total subscription revenue grew 15 per cent to $7.9bn, representing 56 per cent of total Cisco revenue.

Total software revenue was up 25 per cent, hitting $5.6bn.

Software subscription revenue grew 26 per cent year-on-year.

Cisco’s cash flow from operating activities for the third fiscal quarter was $4.1bn, up two per cent year-on-year.

The vendor ended the quarter with $15.6bn in cash and cash equivalents and investments.

The company’s remaining performance obligations (RPO) was $41.7bn, up seven per cent year-on-year.

Cisco expects about half of that to become revenue over the next 12 months.

Product RPO grew ten per cent year-on-year to $20.8bn.

Services RPO grew five per cent to $20.9bn.

Cisco forecasted fourth fiscal quarter revenue between $14.5bn and $14.7bn.

It forecasted fiscal year 2025 revenue of $56.5bn to $56.7bn.

Cisco’s stock traded at about $63 a share Wednesday after market close, up about two per cent.

This article originally appeared on CRN UK sister website CRN.