⚠ Memory Costs Inside Every SwitchModerate threat

Cisco Systems (CSCO) — threat to the moat

About five points of Cisco's latest quarterly growth came from raising prices to pass on memory costs.

The same AI boom that lifted Cisco's orders raised the cost of what goes into its equipment. Cisco's 10-K says productivity benefits "were adversely impacted by higher memory costs"1, and the non-GAAP gross margin fell to 66.3% in the fourth quarter from 68.4% a year earlier2.

Non-GAAP gross margin (%)68.4%Q4 FY2566.3%Q4 FY2665-66%Q1 FY27 guideCisco Q4 FY2026 results release; guidance midpoint calculated
Lower each quarter, even with price rises.

Cisco has responded with price increases. The finance chief said "Price increases contributed about 5 points to top-line revenue growth in Q4" and expects 4 to 5 points of effect in fiscal 2027, with increases that are single-digit and specific to hardware with higher memory use3.

That means part of the growth is price, not volume. It also means Cisco is testing how much its customers will pay before looking elsewhere, which is the clearest test of pricing power a hardware vendor gets.

Price increases have limits Cisco has named. The finance chief said "The price increases are single-digit, specific to hardware with higher memory utilization"4. That is a targeted pass-through, not a general price rise, and it will reverse if memory prices fall, taking a few points of revenue growth with it.

The effect showed in the product margin through the year. Productivity gains added 1.1 points to the product gross margin in fiscal 2026 but were, in Cisco's words, "adversely impacted by higher memory costs"5. Without memory inflation the margin decline from product mix would have been smaller.

Guidance for the first quarter of fiscal 2027 is a non-GAAP gross margin of 65% to 66%6, lower again. If margins keep falling even with price increases, memory is winning the contest.

References
  1. ReportedCisco's 10-K says productivity benefits "were adversely impacted by higher memory costs", and the non-GAAP gross margin fell to 66.3% in the fourth quarter from 68.4% a year earlier.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - Item 7 MD&A: revenue by product category and segment, and gross margins. — FY2026 · publ. 2 September 2026 · source ↗
  2. ReportedCisco's 10-K says productivity benefits "were adversely impacted by higher memory costs", and the non-GAAP gross margin fell to 66.3% in the fourth quarter from 68.4% a year earlier.
    Cisco fourth-quarter and fiscal 2026 results release, Form 8-K exhibit 99.1 - quarterly revenue by line and segment, margins, AI infrastructure orders and fiscal 2027 guidance - fourth-quarter and full-year results by line, segment and margin. — Q4 FY2026 · publ. 12 August 2026 · source ↗
  3. ReportedThe finance chief said "Price increases contributed about 5 points to top-line revenue growth in Q4" and expects 4 to 5 points of effect in fiscal 2027, with increases that are single-digit and specific to hardware with higher memory use.
    GuruFocus via Yahoo Finance, highlights of Cisco's Q4 FY2026 earnings call - ARR, price increases, hyperscaler growth, Acacia and fiscal 2027 margin comments. — Q4 FY2026 · publ. 13 August 2026 · source ↗
  4. ReportedThe finance chief said "The price increases are single-digit, specific to hardware with higher memory utilization".
    GuruFocus via Yahoo Finance, highlights of Cisco's Q4 FY2026 earnings call - ARR, price increases, hyperscaler growth, Acacia and fiscal 2027 margin comments. — Q4 FY2026 · publ. 13 August 2026 · source ↗
  5. ReportedProductivity gains added 1.1 points to the product gross margin in fiscal 2026 but were, in Cisco's words, "adversely impacted by higher memory costs".
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - Item 7 MD&A: revenue by product category and segment, and gross margins. — FY2026 · publ. 2 September 2026 · source ↗
  6. ReportedGuidance for the first quarter of fiscal 2027 is a non-GAAP gross margin of 65% to 66%, lower again.
    Cisco fourth-quarter and fiscal 2026 results release, Form 8-K exhibit 99.1 - quarterly revenue by line and segment, margins, AI infrastructure orders and fiscal 2027 guidance - orders, acquisitions, dividend and fiscal 2027 guidance. — Q4 FY2026 · publ. 12 August 2026 · source ↗
Sources
Generated September 25, 2026