How CSCO (Cisco Systems) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a networking technology leader like Cisco Systems (CSCO) makes money is essential for investors and anyone interested in the business of enterprise IT infrastructure. In this post, we break down Cisco's quarterly income statement (Q4 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick Cisco Systems Overview

Cisco Systems operates as a global provider of networking hardware, software, and services. Its business model centers on selling enterprise networking equipment (routers, switches), cybersecurity solutions, cloud-based collaboration tools, and software subscriptions. Revenue comes primarily from product sales (hardware and software), complemented by recurring service contracts and subscriptions. Cisco segments its business into Infrastructure Platforms, Applications, Security, and Services, with Infrastructure Platforms representing the largest share.

Revenue Breakdown

• Total Revenue (Q4 2025): $14.7B (+3% YoY)
  • Infrastructure Platforms: $7.9B (54% of total)
  • Services: $3.5B (24% of total)
  • Applications: $1.7B (12% of total)
  • Security: $1.6B (11% of total)
• Growth is powered by cloud networking, security solutions, and recurring software subscriptions.

Gross Profit and Margins

• Gross Profit: $9.1B (62% gross margin)
  • Cost of Revenue: $5.6B (+2% YoY)
  • Cisco maintains robust margins due to its scalable software offerings and operational efficiencies in hardware manufacturing.
• Most costs come from hardware production, service delivery, and support operations.

Operating Income and Expenses

• Operating Income: $4.2B (+4% YoY, 29% margin)
• Operating Expenses: $4.9B (+2% YoY)
  • R&D: $1.8B (+3% YoY, 12% of revenue) — Focused on cloud networking, AI-driven security, and next-gen collaboration platforms.
  • SG&A: $2.7B (+1% YoY, 18% of revenue) — Includes global sales teams, marketing, and administrative functions.
  • Cisco continues to prioritize innovation and invest in growth while maintaining operational efficiency.

Net Income

• Pre-Tax Income: $4.0B (+5% YoY, 27% margin)
• Income Tax: $0.8B (20% effective tax rate)
• Net Income: $3.2B (+6% YoY, 22% net margin)
• Cisco converts a significant portion of sales into profit due to its scalable business model and pricing power in enterprise IT.

What Drives Cisco's Money Machine?

• Infrastructure Platforms: 54%+ of revenue, driven by enterprise networking upgrades and cloud migration.
• Recurring Revenue: Subscriptions and services now represent over 35% of total revenue, supporting stable cash flows.
• R&D Investment: $1.8B in Q4 2025, targeting AI, security, and cloud software.
• Emerging Growth Areas: AI-powered networking and edge computing, though not yet profitable, are strategic priorities.

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 and R&D) taking the largest chunk.
• Even after heavy investments in innovation, 22% of revenue drops to the bottom line.

Key Takeaways

• Cisco's money comes overwhelmingly from enterprise networking hardware and software
• High gross and net margins illustrate the power of Cisco's scalable, recurring revenue model
• Heavy investment in R&D, balanced by efficiency in operating costs
• Ongoing growth is driven by cloud migration, security demand, and software subscriptions

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FAQ About Cisco's Income Statement

1. What is the main source of Cisco's revenue in 2025?

Cisco generates over 54% of its revenue from Infrastructure Platforms (networking hardware and software). Services, Applications, and Security are also significant contributors.

2. How profitable is Cisco in Q4 2025?

Cisco reported net income of $3.2B in Q4 2025, with a net margin of approximately 22%, reflecting strong profitability driven by recurring revenue and operational efficiency.

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 $1.8B in Q4 2025, as Cisco prioritizes cloud, security, and AI innovation.

4. Why does Security segment operate at a loss?

Security, despite generating $1.6B in revenue, posted an operating loss of over $0.2B in Q4 2025. This is because Cisco aggressively invests in next-gen security platforms, believing these will drive long-term growth—even if the division is unprofitable today.

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

Cisco's effective tax rate in Q4 2025 was 20%, consistent with previous years. This moderate rate is primarily due to tax benefits from international structuring and share-based compensation.

Note: All financial data is extracted from Cisco Systems’ latest quarterly filings for Q4 2025. Percentages and dollar amounts reflect actual reported results. The Sankey chart visually represents these flows for investor clarity[1][4].