Cisco's (CSCO) Q2 2025 earnings report highlights a 9% year-over-year increase in total revenue, reaching $13.99 billion compared to $12.79 billion in Q2 2024. This growth was driven by an 11% increase in product revenue and a 6% increase in services revenue. The inclusion of Splunk significantly contributed to this performance, with total software revenue rising by 33% and subscription revenue increasing by 23%.

Gross margin improved by 0.9 percentage points to 65.1%, supported by productivity improvements, favorable product mix, and contributions from Splunk. However, pricing erosion partially offset these gains. Operating income as a percentage of revenue declined by 1.9 percentage points to 22.3%, primarily due to higher operating expenses, including incremental costs from Splunk and increased amortization of purchased intangible assets.

Net income for Q2 2025 decreased by 8% year-over-year to $2.43 billion, with diluted earnings per share declining by 6% to $0.61. This decline was attributed to higher operating expenses and amortization costs, despite the revenue growth. The effective tax rate for the quarter was 15.9%, down from 16.7% in Q2 2024, due to an increased U.S. federal research tax credit benefit.

Revenue growth was observed across all geographic segments, with the Americas contributing $8.20 billion (up 9%), EMEA $3.86 billion (up 11%), and APJC $1.93 billion (up 8%). The Americas accounted for 58.6% of total revenue, followed by EMEA at 27.6% and APJC at 13.8%. Growth in the Americas was driven by enterprise and service provider markets, while EMEA and APJC saw gains in public sector and enterprise markets.

Product revenue by category showed mixed results, with Security growing by 117% and Observability by 47%, driven largely by Splunk's contribution. Collaboration revenue increased by 1%, while Networking revenue declined by 3%. Total product revenue reached $10.23 billion, an 11% increase year-over-year.

Services revenue increased by 6% year-over-year to $3.76 billion, driven by growth in Splunk-related advisory services and solution support offerings. Services revenue grew across all geographic segments, with EMEA showing the highest growth at 10%.

Operating expenses increased by 13% year-over-year to $5.72 billion, driven by incremental costs from Splunk, higher headcount-related expenses, and increased discretionary spending. Research and development expenses rose by 18%, sales and marketing by 9%, and general and administrative expenses by 17%.

Cisco returned $2.83 billion to shareholders in Q2 2025, comprising $1.59 billion in dividends and $1.24 billion in stock repurchases. The company declared a quarterly dividend of $0.41 per share for Q3 2025 and authorized a $15 billion increase to its stock repurchase program, bringing the total authorization to $17 billion.

Free cash flow for the first six months of fiscal 2025 was $5.48 billion, up from $2.88 billion in the same period of fiscal 2024. This increase was driven by higher net cash provided by operating activities, which rose to $5.90 billion from $3.18 billion year-over-year. Capital expenditures for the period were $427 million.

Cisco's balance sheet remains strong, with $8.56 billion in cash and cash equivalents as of January 25, 2025, up from $7.51 billion at the end of fiscal 2024. Total assets stood at $121.38 billion, while total liabilities were $75.85 billion, resulting in total equity of $45.53 billion.