Dive Brief:
- Cisco was rocked by an industrywide memory chip shortage during the second quarter of the 2026 fiscal year ended Jan. 26, as its networking product orders spiked, Chair and CEO Chuck Robbins said Wednesday.
- The networking giant grew revenue 10% year over year to a record $15.3 billion, according to Robbins. “When you look at enterprise switching, enterprise routing, the wireless and the industrial IoT platforms … the transition is ramping faster in all four of those areas than the prior transitions that we've seen historically at Cisco,” he added during a Q2 2026 earnings call.
- An upmarket wave of AI infrastructure buildouts took a downstream toll on common chip availability. Cisco is now revising contractual terms with its channel partners and customers to address evolving component prices, Robbins said. “We have already announced price increases, and we’ll continue to monitor market trends and make additional adjustments as necessary,” he added.
Dive Insight:
Demand for AI-optimized parallel processing and high-memory bandwidth is creating silicon supply chain gaps that hit PC memory processors in the latter half of last year. Cisco is also feeling the pinch.
“It’s an industrywide issue,” Robbins said Wednesday. “Customers get it. And while they may not like it, they understand that it's a dynamic that we're all dealing with.”
Massive hyperscaler capital investments, coupled with growing spend from GPU-specific neocloud providers, sovereign cloud initiatives and ongoing large language model training, are expected to drive data center spending to nearly $1 trillion this year, according to a Dell’Oro report published Wednesday.
The AI accelerator chip market alone is projected to grow by roughly 25% annually over the next five years, the analyst firm said in a separate report Thursday.
“The pace of accelerated infrastructure buildouts is expected to continue placing pressure on supply–demand dynamics for key components, particularly memory and storage,” Baron Fung, Dell’Oro Group senior research director, said in the more recent report.
Cisco did not put a number on specific component price increases, but EVP and CFO Mark Patterson reassured investors that the company has yet to see significant impacts on purchasing decisions.
“I haven’t talked to any customers who are willing to delay or defer any sort of strategic investments they’re making in technology,” he said.
On the contrary, the company sees a “once-in-a-generation” infrastructure refresh opportunity spreading from cloud providers to the enterprise space.
“Beyond hyperscalers, we have a separate AI opportunity across neocloud, sovereign and enterprise customers,” Robbins said. “If you look at our data center switching business, which is enterprise focused, we've had double-digit order growth six out of the last eight quarters, and we still had positive growth in the other two.”
The company’s most comprehensive channel overhaul in two decades went into effect last month, using a points-based system to push partners to prioritize customer outcomes over pure sales.
Cisco is effectively ‘raising’ the floor,” Futurum Group analysts said in a report earlier this month. “The new model empowers high-performing, agile partners ready for AI consulting and managed security, the top growth categories for 80% of the channel.”
