How CSCO (Cisco Systems) Makes Money in 2026: A Deep-Dive With Income Statement

Welcome to the Value Sense Blog, your resource for insights on the stock market! At Value Sense, we focus on intrinsic value tools and offer stock ideas with undervalued companies. Dive into our research products and learn more about our unique approach at valuesense.io

Explore diverse stock ideas covering technology, healthcare, and commodities sectors. Our insights are crafted to help investors spot opportunities in undervalued growth stocks, enhancing potential returns. Visit us to see evaluations and in-depth market research.

Understanding how a networking and cybersecurity leader like Cisco makes money is essential for investors and anyone interested in the business of technology. In this post, we break down Cisco's quarterly income statement (Q1 2026) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick Cisco Overview

Cisco operates as a global leader in networking hardware, software, and cybersecurity solutions, providing enterprise infrastructure for secure connectivity and collaboration. Revenue comes primarily from Networking, Security, Collaboration, and Other product categories, with a focus on recurring software subscriptions and services. The company segments its business into core networking, security, and collaboration, emphasizing high-margin software and services amid a shift from hardware sales.

Revenue Breakdown

• Total Revenue (Q1 2026): $15.3B (+9.7% YoY)
  • Networking Revenue: $8.3B (54% of total) (+21.1% YoY)
  • Other Revenue by Product 1: $3.7B (24.1% of total) (+-1.4% YoY)
  • Security Revenue: $2.0B (13.1% of total) (+-4.4% YoY)
  • Collaboration Revenue: $1.1B (6.9% of total) (+5.8% YoY)
  • Other: $0.3B
• Growth is powered by strong demand in core Networking, driven by enterprise upgrades to secure, AI-enabled infrastructure, offsetting softer areas like Security and Collaboration.

Gross Profit and Margins

• Gross Profit: $10.0B (65.0% gross margin)
  • Cost of Revenue: $5.4B (+10.2% YoY)
  • Cisco maintains robust margins due to a scalable software and subscription model, supply chain efficiencies, and a higher mix of high-margin services.
• Most costs come from hardware manufacturing, component sourcing, and service delivery.

Operating Income and Expenses

• Operating Income: $3.8B (+21.5% YoY, 24.6% margin)
• Operating Expenses: $5.9B (+-1.2% YoY)
  • R&D: $2.4B (+2.4% YoY, 15.3% of revenue) — focused on AI-driven networking, cybersecurity innovations, and next-gen silicon chips
  • SG&A: $3.6B (+4.2% YoY, 23.3% of revenue) — covering sales, marketing, and administrative functions amid global expansion
  • Cisco continues to prioritize innovation while maintaining efficiency through cost controls and operational leverage.

Net Income

• Pre-Tax Income: $3.6B (+26.3% YoY, 23.8% margin)
• Income Tax: $0.5B (12.9% effective tax rate)
• Net Income: $3.2B (+30.8% YoY, 20.7% net margin)
• Cisco converts a high portion of sales into profit due to scalability, pricing power in enterprise markets, and effective cost management.

Most investors waste time on the wrong metrics. We've spent 10,000+ hours perfecting our value investing engine to find what actually matters.

Want to see what we'll uncover next - before everyone else does?

Find Hidden Gems First!

What Drives Cisco's Money Machine?

• Networking Revenue: 54%+ of revenue / core hardware and software for switches, routers, and data centers fueling enterprise digital transformation
• Subscription Growth: Key metric with recurring revenue from software assurances and cloud services contributing to margin expansion
• R&D Investments: Strategic focus on AI, security, and observability platforms to sustain competitive edge
• Future growth areas: Security and Collaboration, showing mixed growth but positioned for expansion through acquisitions and AI integrations, though not yet fully profitable at scale

Visualizing Cisco's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant R&D investments, 20.7% of revenue drops to the bottom line.

Key Takeaways

• Cisco's money comes overwhelmingly from Networking products and services
• High gross and net margins illustrate the power of Cisco's subscription-based, asset-light model
• Heavy investment in R&D, balanced by efficiency in operating costs
• Ongoing growth is driven by AI infrastructure demand and networking upgrades

Explore More Investment Opportunities

For investors seeking undervalued companies with high fundamental quality, our analytics team provides curated stock lists:

📌 50 Undervalued Stocks (Best overall value plays for 2026)

📌 50 Undervalued Dividend Stocks (For income-focused investors)

📌 50 Undervalued Growth Stocks (High-growth potential with strong fundamentals)

🔍 Check out these stocks on the Value Sense platform for free!

FAQ About Cisco's Income Statement

1. What is the main source of Cisco's revenue in 2026?

Cisco generates over 54% of its revenue from Networking Revenue. Additional revenue sources include Other Revenue by Product 1 (24.1%) and Security (13.1%).

2. How profitable is Cisco in Q1 2026?

Cisco reported net income of $3.2B in Q1 2026, with a net margin of approximately 20.7%, reflecting strong profitability driven by gross margin expansion and operating leverage.

3. What are the largest expense categories for Cisco?

The biggest expenses on Cisco's income statement are operating expenses, particularly Research & Development (R&D) and Sales, General & Administrative (SG&A) costs. R&D investment reached $2.4B in Q1 2026, as Cisco prioritizes AI, cybersecurity, and networking innovations.

4. Why does Security Revenue operate with slower growth?

Security, despite generating $2.0B in revenue, posted -4.4% YoY growth in Q1 2026. This is because Cisco aggressively invests in emerging threats and platform integrations, believing these will drive long-term growth—even if the division faces near-term headwinds.

5. How does Cisco's effective tax rate compare to previous years?

Cisco's effective tax rate in Q1 2026 was 12.9%, consistent with previous years. This low rate is primarily due to tax benefits from international operations and share-based compensation.