Cisco Systems Faces Memory-Price Shock Compressing Margins Despite Hyperscaler Order Surge

Cisco tackles memory-price shock as hyperscaler orders surge

Cisco Systems is confronting rising memory-chip costs that are compressing gross margins even as product demand accelerates, management says. The networking giant reports another quarter of strong order growth, driven by hyperscale cloud customers and enterprise buyers, but higher memory prices tied to a global shortage are reducing profitability on hardware-heavy products. Cisco cites memory vendors’ large gains as a key headwind and says the timing of memory-cost relief remains uncertain.

To blunt the margin squeeze, Cisco is taking a series of commercial steps that leverage its scale. Management is raising prices on some products and revising contractual terms with channel partners and customers to share or offset inflationary input costs. Executives frame these actions as meaningful mitigants that should support margins over time, but they stress that the pace at which memory prices stabilize will determine how quickly gross-margin recovery occurs.

Orders remain the company’s best leading indicator of future revenue, and Cisco’s backlog and order trends show continued strength across networking portfolios. The combination of persistent hyperscaler spending and enterprise network refresh cycles underpins management’s confidence, even as near-term profitability reflects component cost pressure. Analysts are focusing on whether pricing and contract changes, alongside easing memory costs, translate into a sustained margin rebound.

Quarterly results and guidance snapshot

Cisco posts fiscal 2026 second-quarter revenue of $15.35 billion, up about 10% year on year, with adjusted earnings per share of $1.04, reflecting roughly 11% growth. Management raises its full-year outlook on the basis of continued demand and the measures it is implementing to offset elevated component costs.

Security segment weakness and industry context

Cisco’s Security business remains softer, running near $2 billion in quarterly revenue versus roughly $8.29 billion for Networking, and company commentary underscores the need to see Security product upgrades convert into more durable revenue. The memory-cost dynamic is also reverberating across the broader tech supply chain, where memory-storage stocks and component vendors have seen strong moves, underscoring how supply tightness and pricing shifts are reshaping hardware makers’ margin strategies.