Cisco sold more, earned more, and generated almost exactly the same operating cash.
That is the plain reading of its latest annual report. Revenue rose from $56.7B to $63.3B in the twelve months ended July 25, while net income climbed from $10.2B to $13.3B. Operating cash flow barely changed, slipping from $14.2B to $14.2B.
The difference shows up on the balance sheet. Inventory rose from $3.2B to $5.7B, an 80% increase, while capital spending jumped 55.8% to $1.4B. Accounts receivable rose 11.5% to $7.5B. Cisco does not disclose the cause of the working-capital build in the supplied results. Cash conversion fell to 1.07 times net income from 1.39 times.
Profitability improved on the income statement, though the product business gave some of that back at the gross-profit line. Overall operating margin widened to 24.3% from 20.8%, helped by revenue growth and expense discipline. Gross margin narrowed to 64.5% from 64.9%.
Cisco’s explanation for the product margin pressure is unusually specific:
"Product gross margin decreased by 0.5 percentage points, primarily driven by negative impacts from product mix and higher memory costs, partially offset by productivity improvements, pricing actions, lower amortization of purchased intangible assets and a charge in fiscal 2025 as a result of a legal dispute with a supplier, which did not recur in fiscal 2026."
Cisco, 10-K, Sept. 2, 2026
Memory costs and product mix pulled against pricing and productivity. The comparison also benefited from the absence of a prior-year supplier-dispute charge, so not every margin improvement came from the current operating engine.
At the operating line, the arithmetic was more favorable. Cisco said the margin gain came mainly from sales growth and higher gross margin, partly offset by restructuring and other charges:
"Operating income as a percentage of revenue increased by 3.7 percentage points, primarily driven by revenue growth and higher gross margin as discussed above, partially offset by higher restructuring and other charges."
Cisco, 10-K, Sept. 2, 2026
That combination explains the central tension. Cisco converted stronger reported earnings into no additional operating cash, while spending more on capacity and carrying materially more inventory. The business is scaling, but the cash profile did not scale with it in this twelve-month comparison.
There is a demand case inside the same set of disclosures. Cisco said double-digit growth came across Service Provider Routing, including AI Infrastructure solutions, Data Center Switching, Campus Switching, Wireless, and Enterprise Routing. Financing receivables also increased 28% from the end of fiscal 2025, which Cisco tied to higher customer demand for financing hardware, software, and services.
The backdrop is a company returning to a larger revenue base after sales fell to $53.8B in fiscal 2024. The latest $63.3B is above the prior 2023 peak of $57.0B, while the stock closed at $109.73 on Sept. 1 after rising 39.0% over six months. At 43.1 times earnings, the cash conversion question is part of the stock’s valuation context, not just a balance-sheet footnote.
Cisco’s next quarterly report will put the unresolved point in a fresh frame: whether operating cash flow moves above the current $14.2B annual figure as inventory comes down from $5.7B.
Source: Cisco Systems, Inc. fiscal 2026 Form 10-K filed Sept. 2, 2026.