이번 보고서
2026 연차보고서
10-K · 기간 말 2026. 7. 25. · 제출 2026. 9. 2.
비교 기준
2025 연차보고서
10-K · 기간 말 2025. 7. 26.
1
새 리스크 항목
18
신규 문단
79
수정 문단
55
삭제
-1%
분량 변화
AI 한국어 요약
한 줄 요약
시스코는 하이퍼스케일러 대상 AI 인프라 매출이 소수 고객에 집중되는 위험과 메모리 부족에 따른 원가 상승을 핵심 리스크로 새로 내세웠고, AI로 빨라진 사이버 공격 위협도 크게 강조했습니다.
주목할 변화
- 강화하이퍼스케일러 AI 인프라 매출의 고객 집중·변동성해당 리스크 제목에 "AI infrastructure solutions to large cloud and hyperscaler customers"가 들어갔고, 매출이 "concentrated among a limited number of customers"일 수 있다고 새로 밝혔습니다. 고객이 예산, 자금 조달, AI 수요 전망 변화 등을 이유로 배치를 "delay, reduce or cancel"할 수 있으며, 해당 사업이 커질수록 소수 고객의 구매 시점과 규모가 매출과 마진에 미치는 영향이 커진다고 적었습니다.
- 신규메모리 부족과 부품 원가 상승의 현실화"memory shortages experienced in fiscal 2026"를 직접 언급하면서 "expect to continue to be adversely impacted by the rising costs of currently constrained memory components"라고 밝혔습니다. 매출총이익률 요인 항목에도 메모리 원가 압박이 2026회계연도에 나타났고 앞으로도 이어질 것이라는 문구가 추가됐습니다. 전년에 있던 "product gross margin increased in fiscal 2025" 문구는 삭제됐습니다.
- 강화구매약정·선급금 확대에 따른 재고·손실 위험2025~2026회계연도에 Silicon One과 "memory components" 관련 추가 구매약정을 맺었고, "increased inventory deposits and prepayments"도 했다고 새로 공개했습니다. 수요가 줄거나 지연되거나 기술 아키텍처가 바뀌면 실제 필요량을 넘는 물량을 사야 하고, "losses on purchase commitments"가 발생할 수 있다는 위험이 추가됐습니다.
- 강화하이퍼스케일러의 자체 개발과 아키텍처 경쟁대형 고객이 장비·반도체·소프트웨어를 "design their own"하거나 위탁생산업체에서 직접 구매할 수 있다는 문장이 새로 들어갔습니다. AI·클라우드 시장에서는 고객이 개별 제품보다 아키텍처를 먼저 고르므로, 시스코 제품이 들어가지 않는 구조가 채택되면 "even if our products are superior" 기회가 제한될 수 있다고 적었습니다. 경쟁 상대에 반도체 기업과 클라우드 사업자가 추가됐고, 가격 인하나 할인 확대가 필요할 수 있다는 문장도 새로 들어갔습니다.
- 강화AI가 가속하는 사이버 공격과 양자컴퓨팅 위협AI가 발견과 악용 사이의 간격을 거의 없애는 "zero-minute" 취약점, 그리고 경미한 취약점들을 연결해 심각한 공격으로 만드는 위험이 추가됐습니다. "post-quantum cryptography"를 제때 도입하지 못하면 기존 암호화가 무력화될 수 있다는 위험과, 인수한 회사의 보안 관행 미흡도 새로 언급됐습니다.
- 신규2026회계연도 4분기 구조조정 착수"we initiated a restructuring plan in the fourth quarter of fiscal 2026"라고 밝혔고, 2027회계연도 말까지 대부분 완료할 예정이라고 명시했습니다.
- 강화실리콘·광학 투자와 기술 실행 리스크전략 투자 분야로 "silicon (Cisco Silicon One) and optics, including for AI infrastructure"를 구체적으로 적었습니다. 하이퍼스케일러가 요구하는 성능·비용·전력 효율을 맞추지 못하거나 반도체·광학 설계와 제조 기술을 따라가지 못하는 위험이 추가됐습니다.
- 신규에이전틱 AI와 규제 범위 확대자율형 AI가 "unauthorized actions, privilege escalation"을 일으킬 수 있다는 위험이 새로 들어갔습니다. 규제 측면에서는 EU "Data Act"(산업 데이터 포함)와 "sovereignty, localization, sourcing" 관련 요건이 추가됐습니다.
읽는 법
이번 개정의 중심은 시스코 실적이 하이퍼스케일러의 AI 설비투자 사이클에 더 직접적으로 연결되었다는 점입니다. 그 결과 소수 고객 집중, 대규모 구매약정과 선급금, 메모리 원가라는 세 가지 위험이 함께 커졌습니다. 앞으로 보고서를 읽을 때는 AI 관련 수주의 고객 집중도, 구매약정과 재고 관련 비용 인식, 메모리 원가가 제품 매출총이익률에 미치는 영향, 구조조정 진행 상황을 함께 살펴보면 리스크가 실제로 나타나는지 확인하는 데 도움이 됩니다.
원문 비교
- •Customer patterns, such as fluctuating demand for our products and services, especially with respect to service providers and cloud customers; the timing, size, and mix of orders from customers; and changes in sales and implementation cycles for our products and reduced visibility into our customers’ spending plans and associated revenue
- •Industry trends such as consolidation among our competitors and our customers, and the introduction and market acceptance of new technologies, products and technology standards, and our success in these new and evolving markets and with emerging technologies, including AI
- •Variations in sales channels, product costs, or mix of products sold (e.g., hardware and software sales, including mix of cloud-based and on-premise software sales)
- •Sales discounts, changes in distribution channels, or changes in shipment volume
- Sales to the service provider and cloud market, including sales of AI infrastructure solutions to large cloud and hyperscaler customers, are especially volatile and may be concentrated among a limited number of customers, and weakness in orders from this industry may harm our results of operations or financial condition.
- •Difficulties completing projects related to acquired in-process research and development
- •Challenges entering markets where we have limited experience and competitors have stronger positions
- •Insufficient revenue to offset acquisition-related costs
- •Use significant cash resources, incur debt, or increase interest expense, leverage, and debt service obligations
- •Assume liabilities, become subject to intellectual property or other litigation, and incur significant write-offs, restructuring charges, and related expenses
- •Record goodwill and intangible assets subject to impairment testing, potential impairment charges, and amortization expense
- For additional information and a further discussion of impacts and risks related to cybersecurity matters, see the risk factors under the “Item 1A. Risk Factors— Risk Related to Cybersecurity, Privacy, and Regulatory Requirements” heading.
- •Challenging and uncertain global macroeconomic environments, central bank policies, currency exchange rates, and regional economic instability (including economic challenges in China and their resulting global ramifications)
- •International tensions (including China-Taiwan relations), U.S. foreign relations impacting customer willingness to buy U.S. products or our ability to procure components, trade protection measures such as tariffs, and government disruptions or shutdowns
- •Import/export restrictions, environmental regulations (including climate change laws), and adverse tax consequences (such as withholding taxes)
- •Natural disasters, pandemics, political or social unrest
- •Difficulties managing international operations
- Our products are subject to efforts by third parties to manufacture and sell counterfeit versions. We work diligently with law enforcement authorities in various countries to prevent the manufacture and sale of counterfeit products, detect counterfeit products in customer networks, and pursue enforcement actions against counterfeiters and their distributors. Although these efforts have resulted in fines, imprisonment and restitution, there can be no guarantee that such efforts will succeed and, in certain cases, they may not be successful. Counterfeiters often target customers who may not otherwise purchase our products due to the lack of verified origin or service support associated with counterfeit products. To the extent counterfeit sales displace legitimate sales, our results of operations and reputation could be negatively impacted.
- Our operations can be difficult to predict because our
operatingresults of operations may fluctuate in future periods. - Our
operatingresults of operations have been in the past, and will continue to be, subject to quarterly and annual fluctuations as a result of numerous factors, some of which may contribute to more pronounced fluctuations in an uncertain global economic environment. Consequently, our results of operations are not a reliable indicator of future results. These factors include: - •Our ability to maintain appropriate inventory levels and purchase commitments and manage manufacturing and customer lead times
- •The ability of our direct sale customers, channel partners, contract manufacturers and suppliers to obtain
financing orfinancing, to fund capital expenditures,especially in the event of direct sale customers, channel partner, contract manufacturerorsupplierwithstand financial problems - •Our ability to achieve targeted cost reductions and anticipated benefits from our investments
- Any of
the foregoingthese factors, orany other factorsothers discussedelsewhere herein,in this report, could materially harm our business, results of operations,andor financial condition. - Our
operatingresults of operations may be negatively impacted by unfavorable economic and market conditions and the uncertain geopolitical environment. - The global macroeconomic environment can be challenging and uncertain. Challenging global economic conditions, including tariffs or other trade
barriers,barriers or disruptions, rising inflation, or other changes, havefrom time to timecontributed, and may continue to contribute, to slowdowns in thecommunications and networking industries at large, as well as in specific segments andmarkets in which we operate, resulting in: reduced demand for our productsas a result of continued constraints ondue to constrained IT-relatedcapitalspending byourcustomers, particularly serviceprovider and cloud as well asprovider, cloud, enterprise and other customer markets; increased price competition for our products, not only from our competitors but also as a consequence of customers disposing of unutilized products; risk of excess and obsolete inventories; risk of supply constraints; risk of excess facilities and manufacturing capacity; and higher overhead costs as a percentage of revenue and higher interest expense. For example,Furthermore, the impact of uncertainty regarding global central bank monetary policy, the instability in the geopolitical environment in many parts of the world (including as a result of theon-goingongoing Russia and Ukraine war, Middle East conflicts and wars, and China-Taiwan relations), government-related disruptions or shutdowns, and other disruptions may continue to put pressure on global economic conditions.- Economic conditions specific to one or more segments or customer markets may also affect our results of operations in those segments. If global economic and market conditions were to deteriorate, we may experience material harm to our business,
operating results, andresults of operations, or financial condition. - Our revenue for a particular period is difficult to predict, and a shortfall in revenue may harm our
operating results.results of operations. - Our quarterly revenue is difficult to predict, which can be exacerbated during challenging global macroenvironments and resulting market uncertainty. As in prior periods, we may experience a decline or slower revenue growth rate on a year-over-year basis. Our ability to meet financial expectations could also be negatively impacted if
thenonlinear salespatternor shipping patterns seen insome of our pastprior quartersrecursoccur again in future periods. Nonlinear shipping patterns have occurred when shipments have exceeded net bookings or manufacturing or other issues have delayed shipments, making it difficult to predict revenue for a particular period. Furthermore, nonlinear or irregular shipping patterns can increase costs, due to resulting periods of underutilized capacity, overtime expenses, and potential additional inventory management-related costs. In addition,to the extent that manufacturing issues and any related component shortages result indelayed shipmentsin the future, andarising from manufacturing, component shortages, or any other issues, particularly in periods in which our contract manufacturers are operating at higher levels of capacity,it is possible thatcould negatively impact revenue for a quartercould be negatively impactedif such matters occur and are not remediated within the same quarter. - The timing of large orders can also have a significant impact on our business and
operatingresults of operations from quarter to quarter. From time to time, we receive large orders that have a significant effect on ouroperatingresults of operations in the period in which the order is recognized as revenue. The timing of such orders is difficult to predict, and the timing of revenue recognition from such orders may affect period to period changes in revenue. As a result, ouroperatingresults of operations could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue.LongerAdditionally, longer than normal manufacturing lead times in the past have caused, and in the future could cause, some customers to placethe same or a similar ordermultipletimesorders within our various sales channels and to cancel the duplicative orders upon shipment or receipt of the product, or to also place orders with other vendors with shorter manufacturing lead times. Such multiple ordering (along with other factors) or risk of order cancellation may cause difficulty in predicting our revenue. Further, our efforts to improve manufacturing lead-time performance may result in more variability and less predictability in our revenue andoperating results.results of operations. In addition, whenfacingmanaging component supply-related challenges, we have in thepastpast, and may in thefuturefuture, increaseourefforts in procuring componentsin orderto meet customer expectations, which in turn contributes to an increase in inventory and purchase commitments. Product demand conditions for future periods can be difficult to predict or may persist longer than anticipated. Because we plan our operating expenses primarily based on forecasted revenue levels and these costs and the impact of long term commitments are relatively fixed in the short term, a revenue shortfall from short term business changes or otherwise, may prevent us from adjusting these fixed expenses quickly enough to meet financial expectations. Any of the above factors could materially harm our operations and financial results. - Supply chain issues, including financial problems of contract manufacturers or component suppliers, or a shortage of adequate component supply or manufacturing capacity that increase our costs or cause a delay in our ability to fulfill orders, could have an adverse impact on our business and
operating results,results of operations, and our failure to estimate customer demand properly or significant purchase commitments made in anticipation of such demand may result in excess or obsolete componentsupply,supply or other charges, which could negatively impact our gross margins. - The fact that we do not own or operate the bulk of our manufacturing facilities and that we are reliant on our extended supply chain could have an adverse impact on the supply of our products and on our business and
operating results.results of operations. Financial problems of either contract manufacturers or component suppliers, reservation of manufacturing capacity at our contract manufacturers by other companies, and industry consolidation occurring within one or more component supplier markets, such as the semiconductor market, in each case, could either limit supply or increase costs. - A reduction or interruption in supply, including disruptions on our global supply chain, caused in part by geopolitical tensions; public health
emergencies, geopolitical tensions (including as a result of China-Taiwan relations, increasing tariffs or any other trade tensions) or aemergencies; significant naturaldisasterdisasters (including as a result of climate change); tariffs or other trade barriers or disruptions; a significant increase in the price ofone or morecomponents (including as a result of inflation); a failure to adequately authorize procurement of inventory by our contract manufacturers; a failure by suppliers to deliver on our contracts;a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs; or a decrease in demand for our products could materially harm our business, operating results, and financial condition and could materially damage customer relationships.IT-related failure or disruption; a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs; or a decrease in demand for our products could materially harm our business, results of operations, or financial condition and could materially damage customer relationships. Furthermore, as a result of binding price or purchase commitments with suppliers, we may be obligated to purchase components at prices that are higher than those available in the currentmarket.market or in quantities that exceed our actual requirements if customer demand is lower than anticipated, delayed or shifts to different products or technologies.In the event thatIf webecomeare committed to purchase components at prices in excess of the current market price when the components are actually used, or in quantities in excess of our needs, our gross margins coulddecrease.decrease and we could incur excess or obsolete inventory, losses on purchase commitments or other charges. In addition, vendors may prioritize other customers for business, regulatory, or political reasons or demand price adjustments as a condition of supply. Although we have generally secured additional supply or taken other mitigation actions when significant disruptions have occurred, if similar situations occur in the future, they could materially harm our business, results ofoperations, andoperations or financial condition. - Our growth and ability to meet customer demands depend in part on our ability to obtain timely component deliveries
of partsfrom our suppliers and contract manufacturers. We have experienced past componentshortages in the past,shortages, includingshortagesthose caused by manufacturing process issues, that have affected our operations, includinglonger than normalextended lead times. Additionally, we may in the future experience a shortage of certain component parts as a result of our own manufacturing issues, manufacturing issues or capacity problems at our suppliers or contract manufacturers,capacity problems experienced by our suppliers or contract manufacturersincludingcapacity orcost problems resulting from industryconsolidation,consolidation or otherwise, or strong demand for those parts. Growth in the economy is likely to create greater pressures on us and our suppliers to accurately project component demand andto establish optimaloptimize component levels and manufacturing capacity, especially for labor-intensive components, components for which we purchase a substantial portion of the supply, or the re-ramping of manufacturing capacity for highly complex products. During periods of shortages or delays, including delays resulting from us not accurately forecasting our needs, component prices may increase, or components may not be available at all.WeFor these or other reasons, we may not be able to secure enough components at reasonable prices or of acceptable quality to build new products in a timely manner in the quantities or configurations needed. Accordingly, our revenue and gross margins could suffer until other sources can be developed. - Although in many cases we use standard parts and components for our products, certain components are presently available only from
alimited or singlesource or limitedsources, and a global economic downturn and related market uncertainty could negatively impact the availability of components from one or more of these sources, especially during times when there are supplier constraints based on labor and other actions taken during economic downturns. We may not be able to diversify sources in a timely manner, which could harm our ability to deliver products to customers and seriously impact present and future sales. - We believe
that wefuture supply chain challenges maybe faced with the following challengesinclude: rapid growth inthe future:new markets in which weparticipate may grow quickly,participate, which may make it difficult to quickly obtain significant component capacity;as we acquire companies and new technologies, we may be dependentdependency on unfamiliar supply chains or relatively small supplypartners;partners for the companies and new technologies wefaceacquire; and competition for certain components that are supply-constrained from existing competitors and companies in other markets. - Manufacturing capacity and supply constraints, such as the memory shortages experienced in fiscal 2026, remain significant risks, and we expect to continue to be adversely impacted by the rising costs of currently constrained memory components. We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to improve manufacturing lead-time performance and to help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that either allow them to procure inventory based upon criteria as defined by us or that establish the parameters defining our requirements. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed.
When facing component supply-related challenges,In recent periods, we have increased our efforts in procuring componentsin orderto meet customer expectations,suchas we have historically donein past periodsdue to supply constraints, whichin turn contributeshas contributed to an increase in inventory and purchase commitments.InFor example, in fiscal2025,2025 and 2026, we entered into additional purchase commitments with contract manufacturers and suppliers related to manufacturing Cisco SiliconOneOne, memory components and other products to meet expected demand fromwebscalehyperscalers and other customers. We expect to continue entering into these additional purchase commitments in fiscal2026.2027. We have also increased inventory deposits and prepayments with certain contract manufacturers and suppliers in connection with these arrangements. These past efforts and additional purchase commitments and prepayments significantly increased our supply chain exposure, which resulted in negative impacts to our product gross margin in recent periods and may result in further negative impacts in future periods.The remaining and newThese supply chain exposures include potential material excess and obsolete inventory, losses on purchase commitments or other charges if product demand significantly decreases or is delayed for a sustained duration, we are unable to generate demand for certain products planned for development, customer requirements or technology architectures change or we are otherwise unable to mitigate these supply chain exposures. Product demand conditions for future periods can be difficult to predict, particularly in rapidly evolving sectors such as AI infrastructure. For additional information and a further discussion of impacts and risks related to our inventory commitments and our purchase commitments with contract manufacturers and suppliers, see “Results of Operations—Product Gross Margin—Supply Chain Impacts and Risks”, “Liquidity and Capital Resources—Inventory Supply Chain”under Item 7and Note1413 to the Consolidated FinancialStatements of this report.Statements. Although our product gross margin increased in fiscal 2025, ourOur level of product gross margins has declined in certain priorperiods,periods and could decline in future periods due to adverse impacts from various factors, including:- •Changes in customer, geographic, or product mix, including the mix of hardware and software sales (and the mix of cloud-based and on-premise software sales)
- •Increases in material, labor or other manufacturing-related costs
(i.e.(i.e., component costs, broker fees, expedited freight and overtime) or higher supply chain logistics costs, any of which could be significant, especially during periods of supply constraints for certain costs, such as those that we haveimpactedseen impact the market forcomponents,components in prior periods, including semiconductors and memory (as we saw inpast periods,fiscal 2026 and expect to continue seeing), and which costs have in the past and may continue to be exacerbated by inflation - •The timing of revenue recognition and revenue deferrals or increased amortization of purchased intangible assets, especially from acquisitions
- •Increased costs (including royalty or royalty costs and those caused by tariffs or economic conditions, including inflation), loss of cost savings or dilution of savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand or if the financial health of either contract manufacturers or suppliers deteriorates
- •Lower than expected benefits from value engineering and our ability to reduce production costs
- Sales to the service provider and cloud market are often characterized by large and sporadic purchases. Our sales of AI infrastructure solutions to cloud and hyperscaler customers may similarly involve large and concentrated purchases, and demand may depend on a limited number of customers' capital spending levels, the timing and scale of AI infrastructure deployments, technology and network architecture decisions, and decisions regarding whether to purchase solutions from us or other vendors or develop certain technologies internally. These customers may delay, reduce or cancel planned deployments or purchases for a variety of reasons, including, among others, as a result of budgetary constraints, funding limitations or concerns and changes in anticipated demand for AI infrastructure, available capacity, technology requirements, competitive offerings or investment priorities. Although service provider and cloud product orders increased
during fiscal 2025, service provider and cloud market product orders decreasedinfiscal 2024, and at various timesrecent quarters, in the past we have experienced significant weakness in product orders from the service provider and cloud market.ProductThese ordersfrom the service provider and cloud marketcould decline in the future and, as has been the case in the past, such weakness could persist over extended periodsof timegiven fluctuating market conditions. Products in the service provider and cloud market could also face a high degree of customer concentration, with bespoke product designs and features that would be difficult to sell to alternate customers should the primary customer reduce its productorders with Cisco.orders. As our business with large cloud and hyperscaler customers grows, changes in the timing or size of purchases by a limited number of customers could have a greater impact on our revenue, gross margins and results of operations from period to period. Sales activity in this industry depends upon the stage of completion of expanding network infrastructures; the availability of funding; the expected returns from investments in AI and other infrastructure; customer decisions regarding network architecture, silicon, optics and other technologies; and the extent to which service provider and cloud customers are affected by regulatory, economic, and business conditions in the country of operations. Weakness in orders from this industry, including as a result of any slowdown in capital expenditures by service providers (which may be more prevalent during a global economic downturn, or periods of economic, political or regulatory uncertainty), could materially harm our business,operating results, andresults of operations, or financial condition. Such slowdowns may continue or recur in future periods. Orders from this industry could decline for many reasons other than the competitiveness of our products and services within their respective markets. For example, in the past, many of our service provider and cloud customers have been negatively impactedbyby: slowdowns in the generaleconomy, by overcapacity, byeconomy; overcapacity; changes in the service provider and cloudmarket, bymarket; regulatorydevelopments,developments; andbyconstraints on capital availability, resulting in business failures and substantial reductions in spending and expansion plans. Changes in expectations regarding future demand for AI infrastructure or other network capacity could similarly result in reductions, delays or changes in customer investment plans. These conditions have negatively impacted our business andoperatingresults of operations in the past, and could materially harm our business andoperatingresults of operations in any future period. Finally, service provider and cloud customers typically have longer implementation cycles; require a broader range of services, including design services; demand that vendors take on a larger share of risks; may require customized products or significant commitments of supply or capacity; often require acceptance provisions, which can lead to a delay in revenue recognition; and expect financing from vendors. All these factors can add further risk to business conducted with serviceproviders.providers and cloud customers. - If we fail to manage distribution of our products and services properly, or if our distributors’ financial condition or operations weaken, our revenue and gross margins could be negatively impacted. A substantial portion of our products and services is sold through our channel partners, and the remainder is sold through direct sales. Our channel partners include systems integrators, service providers, other third-party resellers, and distributors. Systems integrators and service providers typically sell directly to end users and often provide system installation, technical support, professional services, and other support services in addition to network equipment sales. Systems integrators also typically integrate our products into an overall
solution, and a number of service providers are also systems integrators.solution. A number of service providers are also systems integrators. Distributors stock inventory and typically sell to systems integrators, service providers, and other third-party resellers. We refer to sales through distributors as our two-tier system of sales to the end user. If sales through indirect channels increase, this may lead to greater difficulty in forecasting the mix of our products and, to a degree, the timing of orders from our customers. - Historically, we have seen fluctuations in our gross margins based on changes in the balance of our distribution channels. There can be no assurance that future changes in the balance of our distribution model
in future periodswould not have an adverse effect on our gross margins and profitability. Some factors could result in disruption of or changes in our distribution model, which could harm our sales and margins, including the following: competition with some of our channel partners, including through our direct sales, which may lead these channel partners to use other suppliers that do not sell directlysell their own productsorotherwisecompete with them; some of our channel partners may demand that we absorb a greater share of the risks that their customers may ask them to bear; some of our channel partners may have insufficient financial resourcesand may not be ableto withstand changes and challenges in business conditions; and revenue from indirect sales could suffer if our distributors’ financial condition or operations weaken. In addition, we depend on our channel partners globally to comply with applicable regulatory requirements. To the extent that they fail to do so, that could materially harm our business,operating results, andresults of operations, or financial condition. Further, sales of our products outside of agreed territories can result in disruption to our distribution channels. - The markets in which we compete are characterized by rapid change, converging technologies, and a migration to networking and communications solutions that offer relative
advantages.advantages, all of which are factors that pose competitive threats. We compete with numerous vendors across our product categories, and the number, identity, and composition of our competitors, including those providing niche product solutions, may change as we expand into newer products, technologies, and key priority areas. For example, as products related to network programmability, such assoftware definedsoftware-defined networking (SDN) products, have become more prevalent, we have faced increased competition from companies that develop networking products based on commoditized hardware, referred to as “white box”hardware, to the extent customers decide to purchase those product offerings instead of ours.hardware. Similar dynamics apply in the markets supporting AI and cloud infrastructure, where customers select among competing network architectures before they select individual products. To the extent customers adopt architectures that are not designed to include the type of products and solutions we provide, our opportunities may be limited even if our products are superior. The competitors in these markets include semiconductor companies, systems providers, cloud providers and other technology companies in addition to traditional networking vendors. In addition, the growth in demand for technology delivered as a service enables new competitors to enter the market. Providers of cloud-based services also compete with us directly in certain of our product categories. As we continue to expand globally, we may see new competition in different geographic regions. In particular, we have experienced price-focused competition from competitors in Asia, especially from China, and we anticipate this will continue. For information regarding our competitors, see the section entitled “Competition” contained in “Item 1. Business” of this report. - Some
of ourcompetitors compete across many of our product lines, while othersare primarily focusedfocus in a specific product area. Barriers to entry are relatively low, and new ventures to create products that do or could compete with our products are regularly formed. In addition, some of our competitors may have greater resources, including technical and engineering resources, than we do. As we expand into new markets, we will face competition not only from ourexistingcurrent competitors but also from other competitors, includingexistingestablished companies with strong technological, marketing, and sales positions in those markets. We alsosometimesface competition from resellers and distributors of our products. Companies with which we have strategic alliances in some areas may be competitors in other areas, and this trend mayincrease.increase and we may have to cooperate and at the same time compete with companies. For example, the enterprise data center is undergoing a fundamental transformation arising from the convergence of technologies, including computing, networking, storage, and software, that previously were segregated. Due to several factors, including the availability of highly scalable and general purpose microprocessors, application specific integrated circuits offering advanced services, standards based protocols, cloud computing and virtualization, the convergence of technologies within the enterprise data center is spanning multiple, previously independent, technology segments. Also, some of our current and potential competitorsfor enterprise data center businesshave made acquisitions, or announcednewstrategic alliances, designed to position them to provide end-to-end technologysolutions for the enterprise data center.solutions. As a resultof allof these developments, we face greater competition in the development and sale of enterprise data center technologies, including competition from entities that are among our long-term strategic alliance partners. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. To remain competitive, we may be required to reduce prices, increase discounts or offer more favorable terms, and we may need to increase research and development and sales and marketing spending in response to competitive pressures, any of which could reduce our revenue and gross margins. If we do not compete successfully in the markets in which we participate, we could lose market share. - We also face competition from customers to which we license or supply technology and suppliers from which we transfer technology. Certain of our largest customers, including hyperscalers, have the technical and financial resources to design their own networking equipment, semiconductors and software, or to purchase directly from contract manufacturers, rather than purchase these technologies from us.
AnyThe inherent nature of networking requires interoperability and any inability to effectively manage these complicated relationships with customers, suppliers, and strategic alliance partners could materially harm our business,operating results, andresults of operations, or financial condition and accordingly affect our chances of success. - We must manage inventory relating to sales
toof our distributors effectively,becauseas inventory held by them could affect our results of operations.Our distributorsDistributors may increase orders during periods of product shortages, cancel orders if their inventory is too high, or delay orders in anticipation of new products. They also may adjust their orders in response to the supply of our products andthecompeting productsof our competitorsthat are available to them,and in response toas well as seasonal fluctuations in end-user demand. Our distributorsaregenerallygivenhave business terms that allow them to return a portion of inventory, receive credits for changes in selling price, and participate invariouscooperative marketing programs. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescencebecause ofresulting from rapidly changingtechnologytechnologies and customer requirements. If we ultimately determine that we have excess inventory, we mayhave toreduce our prices and write down inventory, whichin turncould result in lower gross margins. - We
currentlyincorporate AI technology in certain of our commercial offerings and in our business operations. Our research and development of AI technology remains ongoing. AI presents risks and challenges and may result in unintended consequences, including inadvertent disclosure or misuse of intellectual property, confidential, personal, and/or competitive information, that could affect our reputation, our further AI development or our and our customers’ adoption and use of this technology. Agentic AI systems, which operate with autonomous decision-making capabilities and access to multiple tools and data sources, may also introduce unique risks such as unauthorized actions, privilege escalation, and potential exploitation by malicious actors. AI algorithms and training methodologies may be flawed. Additionally, AI technologies are complex and rapidly evolving, and we face significant competition in the market and from other companies regarding such technologies. Leveraging AIcapabilitiesto potentially improve our internal functions and operations also presents risks, costs, and challenges. While we aim to develop and use AI responsibly and attempt to identify and mitigate ethical and legal issues and risks presented by its use, we may be unsuccessful in identifying or resolving issues and risks before they arise. The AI-related legal and regulatory landscape is complex and constantly evolving and therefore remains uncertain and may be inconsistent from jurisdiction to jurisdiction. Our obligations to comply withthethis complex and evolving legal and regulatory landscape could entail significant compliance or other costs or limit our ability to incorporate certain AI capabilities into our offerings. Because of increased complexity and autonomy, the use of agentic AI increases the difficulty of monitoring and controlling AI behavior, potentially resulting in unintended actions that could cause legal, regulatory, or reputational harm. AI-related issues, deficiencies and/or failures could also give rise to legal and/or regulatory action (including with respect to proposed legislation regulating AI in jurisdictions such as the European Union and others, and as a result of new and different applications of existing and new data protection, privacy, cybersecurity, intellectual property, and otherlaws);laws and regulations); damage our reputation; or otherwise materially harm our business. - In recent years, we have shifted our business model to deliver more recurring software and subscription offerings. This shift in our business model was accelerated by
recentacquisitions, including our acquisition ofSplunk in the third quarter of fiscal 2024.Splunk. Market acceptance of our software subscription offerings, which includes our as-a-service solutions, can be affected by a variety of factors, including: security, reliability, performance, terms of service, support terms, customer preference, community engagement, concerns regarding data privacy or data protection, and the enactment of laws or regulations in jurisdictions in which we operate. To generate sales growth for our software subscription offerings, we need to convince potential customers to purchase new licenses or subscriptions and generate timely renewals and additional purchases from existing customers. Any failure to do so could result in decreased revenue, reduced sales, increased churn or otherwise negatively impact our results of operationsandor financial condition. Further, growth of our software subscription offerings depends, in part, on the ability of customers to use and access these solutions. We have experienced, and may in the future experience, interruptions in service, storage failures, and other performance-related problems due to a variety of factors, such as infrastructure and software changes, human or software errors, capacity constraints, unauthorized access, denial of service or other cyberattacks.attacks, and our exposure to these risks is growing as increasingly powerful AI capabilities emerge and are widely disseminated among threat actors. In some instances, we may not be able to timely identify the cause or causes of these performance problems and, even if timely identified, we may be unable to timely remediate the underlying cause. It may become increasingly difficult to maintain and improve our performance for our software subscription offerings, especially during peak usage times and as our solutions become more complex and our user traffic increases. Performance-related issuesofwith our software subscription offerings may result in increased operational costs, delays in new feature rollouts, customer loss, reputational damage, and legal or regulatory liability, including liability under customer contracts or for losses suffered by our customers. - To deliver our software subscription offerings, we have incurred and will continue to incur substantial costs to implement and maintain this business. We also make significant investments to increase or maintain capacity and to develop and implement new technologies in our infrastructure and operations, including those provided by third-party providers on which we rely. We may not be successful in developing or implementing these technologies. To the extent that costs associated with software subscription offerings were to significantly increase or we do not effectively scale our operations to meet the needs of our customers
andor to maintain performance as our customers expand their use of our solutions, we may not be able to grow this business as quickly as we anticipate, our customers may reduce or cancel use of our solutions, andwe may be unable to compete as effectively andourbusiness andresults of operations may be harmed.WeAdditionally, we are also subject to the risk of performance-related problems or interruption of the services provided by third-party providers on which we rely, which could cause revenuesfor software subscription offeringsto decline, damage to our reputation, legal liability exposure, and/or increased expenses, all of which could negatively impact our business, results of operations,andor financial condition. - We depend upon the development of new products and services, and enhancements to existing products and services, and if we fail to predict and respond to emerging technological trends and customers’ changing needs, our
operatingresults of operations and market share may suffer. - The markets for our products and services are characterized by rapidly changing technology, evolving industry standards, new product and service introductions, and evolving methods of building and operating networks. Our
operatingresults of operations depend on our ability to develop and introduce new products and services into existing and emerging markets andtoreducetheproduction costs of existing products. If customers do not purchase and/or renew our offerings our business could be harmed. The process of developingDeveloping newtechnology,technologies, including more programmable, flexible and virtual networks, and technology related to other market transitions— such as AI, security, observability, and cloud— is complex and uncertain, and if we fail to deliver on our customers’ changing needs, including our hyperscaler and other customers’ performance, cost and power efficiency requirements, or accurately predictcustomers’ changing needs andemergingtechnologicaltechnology trends our business could be harmed. Wemustcommit significant resources, includingtheinvestmentswe have been makinginourstrategic priorities such as silicon (Cisco Silicon One) and optics, including for AI infrastructure, todevelopingdevelop new products and services before knowing whether our investments will result in products and services the market will accept. In particular, if our model of the evolution of networking, security, or observability does not emerge as we believe it will, or these industries do not evolve as we believe they will, or if our strategy for addressing this evolution is not successful, many of our strategic initiatives and investments may be of no or limited value. For example, if we do not timely introduce products related to these markets, or if such products or offerings that ultimately succeed in these markets are based on technology, or an approach to technology, that differs from ours, our business could be harmed. In addition, our business could be negatively impactedin periods surrounding our new product introductionsif customers delay purchasing decisions to qualify or otherwise evaluatetheour new product offerings.AsWe seek to offer our products and solutions in the manner in which customers wish to consume them and as a part of these efforts, we continue to make changes tohow we are organizedour organizational structure and how we build and deliver our technology, including changes in our business models with customers. If our strategy for addressingourevolving customer needs, or the architectures and solutions we develop do not meet those needs, or the changes we are making inhow we are organizedour organizational structure and how we build and deliverorour technology is incorrect or ineffective, our business could be harmed.- Furthermore, we may not execute successfully on our
vision orstrategy because of challenges with regard to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, including keeping pace with evolving semiconductor and optical design and manufacturing technologies, or a lack of appropriate resources. This could result in competitors, some of which may also be our strategic alliance partners, providing those solutions before we do andloss ofdecreased market share, revenue, and earnings. In addition, the growth in demand for technology delivered as a service enables new competitors to enter the market.ThereAdditionally, there can be no assurance that we will successfully identify new product and services opportunities, develop and bring new products and services to market in a timely manner, or achieve market acceptance of our products and services or that products, services and technologies developed by others will not render our products, services or technologies obsolete or noncompetitive. The products and technologies in our other product categories and key priority areas may not prove to have the market success we anticipate, and we may not successfully identify and invest in other emerging or new products and services. - In response to changes in industry and market conditions, we may be required to strategically realign our resources and to consider restructuring, disposing of, or otherwise exiting businesses. Any resource realignment, or decision to limit investment in or dispose of or otherwise exit businesses, may result in the recording of special charges, such as inventory and technology-related write-offs, workforce reduction or restructuring costs, charges relating to consolidation of excess facilities, or claims from third parties who were resellers or users of discontinued products. Our estimates with respect to the useful life or ultimate recoverability of our carrying basis of assets, including purchased intangible assets, could change as a result of such assessments and decisions. Although in certain instances our supply agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed, our loss contingencies may include liabilities for contracts that we cannot cancel with contract manufacturers and suppliers. Further, our estimates relating to the liabilities for excess facilities are affected by changes in real estate market conditions. Additionally, we are required to perform goodwill impairment tests on an annual basis and between annual tests in certain circumstances, and future goodwill impairment tests may result in a charge to earnings. From time to time we initiate restructuring plans. For example, we initiated a restructuring plan in the fourth quarter of fiscal 2026, for which we expect such plan to be substantially completed by the end of fiscal 2027. Our business may not be more efficient or effective than prior to implementation of such plans. Our restructuring activities, including any related charges and the impact of the related headcount restructurings, could materially harm our business,
operating results, andresults of operations, or financial condition. - Over the long term we intend to invest in engineering, sales, service and marketing activities, and in key priority areas, and these investments may achieve delayed, or lower than expected, benefits which could harm our
operating results.results of operations. - While we intend to focus on managing our costs and expenses, over the long term, we also intend to invest in personnel and other resources related to our engineering, sales, service and marketing functions as we realign and dedicate resources on key priority areas, such as AI, cloud, and cybersecurity. We also intend to focus on maintaining leadership in core networking and services. We are likely to recognize the costs associated with these investments earlier than some of the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect. If we do not achieve the benefits anticipated from these investments (including if our selection of areas for investment does not play out as we expect), or if the achievement of these benefits is delayed, our
operatingresults of operations may be negatively impacted. - We have made and expect to continue to make acquisitions that could disrupt our operations and harm our
operating results.results of operations. - Our growth depends
uponon market growth, our ability to enhanceourexisting products, and our ability to introduce new products on a timely basis. Weintendexpect to continueto address the need to developdeveloping new products andenhanceenhancing existing products through acquisitions ofothercompanies, product lines, technologies, and personnel. Acquisitions involve numerous risks,including the following:including: - •Difficulties or delays
inintegrating theoperations (includingoperations, including ITsecurity),security, systems, technologies, products, and personnel oftheacquired companies, particularly companies withcompanies that havelargeand widespreadglobal operationsand/oror complex products(such as Splunk) - •Diversion of management’s attention from
normal dailyday-to-day operationsof the businessand the challenges of managing larger and morewidespreadcomplex operationsresulting fromfollowing acquisitions •Initial dependence•Dependence on unfamiliar supply chains orrelatively smallsmaller supply partners- •Incur tax
expensesexpense related to the effect of acquisitions on our legal structure - Mergers and acquisitions of
high-technologytechnology companies are inherently risky and subject tomanyfactors outsideofour control, and there can be no assurancecan be giventhatour previouspast or future acquisitions will be successfulandor will not materially harm our business,operating results,results of operations, or financial condition. Failure to successfully manage andsuccessfullyintegrate acquisitions could materially harm our business andoperating results.results of operations. Prior acquisitions have produced mixed results, ranging from successful new products and technologies to failures to achieve expected benefits. Evenwhenwhere an acquired company hasalready developed and marketedexisting products, there can be no assurance that product enhancements will bemade incompleted on a timelyfashionbasis or that pre-acquisition due diligencewill havehas identified allpossible issues that might arise with respect to such products.potential issues. In addition, mergers and acquisitions could affect our future effective tax rate. Risksdescribedassociated withrespect tonew product development also apply to acquisitions. - As we
focus onpursue new market opportunities and key priority areas,such asincluding AI, cloud, and cybersecurity, we compete with companies of allsizes.sizes, some of which may have greater resources than we do.Additionally, asAs customers complete infrastructure deployments, they may require greater levels of service, support, andfinancing than we have provided in the past,financing, especially in emergingcountries.markets, and demand for these offerings may increase. We may not be able to provide products, services, support, or financing necessary to effectively compete for these markets. Expansion into other markets also subjects us to additional operational, legal, regulatory, and market risks, including adverse economic conditions and reduced customer spending. In addition, expanding our direct selling capabilities globally to meet changing customer demands subjects us to additional legal and regulatory requirements. If we are unable to manage these risks effectively, our business, results of operations, or financial condition could be harmed. - We have
severalstrategic alliances with large and complex organizations and other companieswith which we workto offer complementary products and services. These arrangements are generally limited to specificprojects, the goal of which is generallyprojects intended to facilitate product compatibility and the adoption of industry standards. We may not realize the expected benefits from these strategic alliances or joint ventures, and if successful, these relationships may also increase competition in certain business areas. Strategic alliances and joint ventures involve risks because we may compete with a company in some business areas while cooperating with that same company in others.Also,In addition, ifthese companiesour strategic alliance partners or joint venture partners fail to perform or if these relationshipsfail to materializedo not develop as expected, we couldsufferexperience delays in product development or other operational difficulties. Joint ventures can also be difficult tomanage, givenmanage due to the potentially different interests ofjoint venture partners.the parties involved. - We produce highly complex hardware and software products that incorporate leading-edge
technology, including both hardware and software.technology. Software typically contains bugs or other quality or reliabilityproblemsissues that can unexpectedlyinterfere with itsdisrupt the intended operations of the product orthe intended operation ofthe systems in whichour softwareit is installed.There can be no assurance that our pre-shipment orOur pre-release testing programswill be adequate tomay not detect all isolated or systemic defects, either ones in individual products or ones that could affect numerous shipments, which might interfere with customer satisfaction, reduce sales opportunities, or affect gross margins. From time to time, we have had to replacecertaincomponents andprovide remediation in response to the discovery ofremediate defects or bugs inproducts that we had shipped.shipped products. There can be no assurance that suchremediation,remediation would be successful or, depending on the product involved,would nothave a material impact. An inability to cure a product defect or bug could result in the failure of a product line, temporary or permanent withdrawal from a product or market, damage to our reputation, inventory costs, product reengineering expenses or legal liability, any of which could materially harm our revenue, margins, and net income. - Due to the global nature of our operations, political or economic changes or other factors in a specific country or region could harm our
operatingresultsandof operations or financial condition. - We conduct significant sales and customer support operations in countries around the world. As such, our growth depends in part on our increasing sales into emerging countries. We also depend on non-U.S. operations of our contract manufacturers, component suppliers and distribution partners. Our business in emerging countries in the aggregate experienced a decline in orders in certain prior periods. We continue to assess the sustainability of any improvements in our business in these countries and there can be no assurance that our investments in these countries will be successful. Our future results could be negatively impacted by a variety of political, economic or other factors relating to our operations inside and outside the United States, any or all of which could materially harm our results of operations or financial condition, including the following:
- Most of our sales are on an open credit basis, and, in addition to varying payment terms globally, we provide financing and facilitation of leasing arrangements for our products, services, and related installation costs. Our exposure to
thecredit risks relating to our financing activities may increase if our customers are negatively impacted byaglobal economic downturn orperiods of economicuncertainty. There can be no assurance that programs we have in place to monitor and mitigate credit risks will be effective. In the past, there have been significant bankruptcies of customers on open credit or with financing arrangements that have caused financial losses. There can be no assurance that additional losses will not be incurred. Although these losses have not been material to date, futurelosses, if incurred,losses could materially harm our business,operating results,results of operations, or financial condition. Furthermore, if credit market turmoil restricts our customers’ ability to obtain financing, their ability to pay could be impaired, adversely affecting our business, results of operations, or financial condition. OurWe maintain an investment portfolioincludeswith various holdings, investment types, and maturities, including available-for-sale debtinvestmentsand equity investments, the values of which are subject to marketpricevolatility. If the market value of these investments declines, as has occurred in the past, we may be required to recognize impairment charges or other losses in our results of operations for the period. Ourprivately held investmentsnon-marketable equity securities are subject to the risk of loss of investment capital. These investments are inherently risky because the markets for the technologies or productsthey haveunder development by these companies are typically in the early stages and may never materialize. As a result, we could lose all or part of our investments in these companies. For information regardingthemarket risks associated with the fair value of portfolio investments and interest rates, refer to the section titled “Quantitative and Qualitative Disclosures About Market Risk.”- Because a significant portion of our business is conducted outside the United States, we
face exposureare exposed to adverse movements in foreign currency exchange rates, including in emergingmarketmarkets where currencieswhich can have extreme currency volatility.may be extremely volatile.An increase in the value of theA stronger U.S. dollar could increase the real costto our customersof our products inthosemarkets outside the United States where we sell indollars anddollars, while aweakenedweaker dollar could increasethe cost oflocal operating expenses andprocurementthe cost of components or raw materialsto the extent that we must purchase componentspurchased in foreign currencies. These exposures may change over time as our business practicesevolve,evolve andtheycould materially harm our financial results and cash flows. - Our success
has always dependeddepends in large part on our ability to attract and retain highly skilled technical, managerial, sales, and marketing personnel. Competition forsuchqualified personnel is intense, especially intheSilicon Valleyarea of Northern Californiaand other major United States locations.StockOur stock incentiveplans areplan is designed to reward employees for their long-term contributions and provide incentives for them to remain with us. Volatility or lack of positive performance in our stock price or equity incentive awards, or changes to our overall compensation program, including our stock incentive program, resulting from the management of share dilutionandor share-based compensationexpense or otherwise,expense, mayalsonegativelyimpactaffect our ability to retain key employees. As a result of one or more of these factors, we may increaseourhiring ingeographic areaslocations outside the United States, which couldsubject usincrease our exposure toadditionalgeopolitical andexchange rate risk.foreign currency risks. The loss of key personnel, difficulty attracting or retaining qualified employees, or delays in hiring, particularly in engineering and sales roles, could impair our ability to meet key objectives, including timely and effective product introductions. In addition, companies in our industry whose employees accept positions with competitorsfrequently claim that competitors have engaged insometimes assert claims related to alleged improper hiring practices. We have receivedthesesuch claims in the past and may receive additional claims in the future. - Adverse resolution of claims, litigation or governmental investigations may harm our
operatingresults of operations or financial condition. - We are a party to a variety of claims, litigation and governmental investigations arising in the normal course of
ourbusiness.Claims, litigation and governmental investigationsThese matters may arise from a widevarietyrange of businesspracticesactivities and initiatives, includingmajornew product releases, significant business transactions, warranty or product claims, employment practices, andregulation.regulatory matters. Claims, litigation or governmental investigations can be costly, time-consuming, and disruptive to our business operations, and their outcomes are inherently difficult to predict. In addition, management’s assessment of these matters may change over time. An unfavorable resolution of claims, litigation or governmental investigations could materially harm our business,operating results,results of operations, or financial condition. For additional information regarding certainof thematters in which we are involved, see Note1413 to the Consolidated Financial Statements, subsection (f) “Legal Proceedings.” - Our
operatingresults of operations may be negatively impacted and damage to our reputation may occur due to the production and sale of counterfeit versions of our products. - Our provision for income taxes is subject to volatility and could be negatively impacted by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates;
bychanges in the valuation ofourdeferred tax assets and liabilities;bychanges to foreign-derived intangible income, global intangible low-taxincome andincome, base erosion and anti-abuse tax, research and development capitalization and amortization, and corporate alternative minimum tax laws, regulations, or interpretations thereof;byexpiration of or lapses in tax incentives;bytransfer pricing adjustments, includingthe effect ofthose resulting from acquisitionsonor changes to our legal structure;bytax effects of nondeductible compensation;bytax costs related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, and the foreign tax credit rules. Significant judgment is used in determining our provision for income taxes and evaluating tax positions. In certain countries, our income has benefited from reduced tax rates associated with employment and capital investment actions and commitments. If we do not meet the requirements for these reduced rates, our provision for income taxes could be adversely affected. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on ouroperatingresults of operations and financial condition. - Our corporate headquarters, including certain
of ourresearch and developmentoperationsoperations, are located intheSiliconValley area of Northern California,Valley, a region known for seismic activity. Additionally,a certain numbersome of our facilities are located near rivers that have experienced flooding in the past. Certain of our customers, suppliers, and logistics centers are located in areas that have experienced or may experience earthquakes, tsunamis, flooding, wildfires, storms, drought, sea-level rise, changing precipitation patterns, or other weather-related events. These events have disrupted, or could in the future disrupt, the supply of components, the manufacture and delivery of products, and other business operations. Global climate change may increase the frequency or severity of certain natural disasters and related disruptions. Although to date we have not experienced a material event resulting from these types of natural disasters, future events could materially harm our business, results of operations, or financial condition. - Terrorism, war, and other events may harm our business,
operatingresultsandof operations or financial condition. - The continued threat of terrorism and heightened security and military action in response thereto, or any other current or future acts of terrorism, war (such as the
on-goingongoing Russia-Ukraine war and Middle East conflicts and wars), and other events (such as economic sanctions, trade restrictions or disruptions and reactions of the governments, markets and the general public, including the sanctions and restrictions related to theon-goingongoing Russia-Ukrainewar)war or arising out of the current conflicts and wars in the Middle East) may cause further disruptions to the economies of the United States and other countries and create further uncertainties or could otherwise negatively impact our business,operating results, andresults of operations, or financial condition. Likewise, events such as loss of infrastructure and utilities services such as energy, transportation, or telecommunications could have similar negative impacts. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders or the manufacture or shipment of our products, our business,operating results, andresults of operations, or financial condition could be materially harmed. - There can be no assurance that our
operatingresultsandof operations or financial condition will not be negatively impacted by our incurrence of debt. - As of the end of fiscal
2025,2026, we have senior unsecured notes outstanding in an aggregate principal amount of$24.8$23.0 billion that mature at specific dates from calendar year 2026 through 2064. We have also established a commercial paper program under which we may issue short-term, unsecured commercial paper notes on a private placement basis up to a maximum aggregate amount outstanding at any time of $15.0 billion, and we had$3.5$6.7 billion in commercial paper notes outstanding under this program as of July26, 2025.25, 2026. There can be no assurance that our incurrence of this debt or any future debt, including any additional debt to refinance maturing debt, will be a better means of providing liquidity to us than would our use of our existing cash resources. Further, we cannot be assured that our maintenance of this indebtedness or incurrence of future indebtedness will not negatively impact ouroperatingresults of operations or financial condition. In addition, changes by any rating agency to our credit rating can negatively impact the value and liquidity of both our debt and equity securities, as well as the terms upon which we may borrow under our commercial paper program or future debt issuances. - We are subject to evolving and sometimes conflicting, laws, regulations, policies, and investor and other stakeholder expectations concerning environmental, social, and governance
matters, such as environmental sustainability and climate change,matters both in the United States and internationally. Any initiatives, goals, or commitments we disclose in this regard involve risks and uncertainties and could be difficult to achieve and costly to implement. For example, in September 2021, we announced our goal to achieve net zero across all scopes of greenhouse gas emissions by 2040, the achievement of which relies, in large part, on the accuracy of our estimates and assumptions around theenhanced powerenergy consumption and efficiency of our products, theadoptionintegration ofrenewableclean energyat customer and supplier sites,into electric grids globally, and theadoptionprocurement of certainof ourproducts and services by our customers. We could fail to achieve, or be perceived to fail to achieve, our 2040 net zero goal or other initiatives, goals, or commitments. In addition, in a climate where there are changing and increasingly divergent views on where our focus should be on these matters, our initiatives, goals, or commitments, or any revisions to them, are often criticized and the accuracy, adequacy, or completeness of such disclosures challenged. Our actual or perceived failure to achieve our initiatives, goals, or commitments, or otherwise successfully manage investor or other stakeholder expectations on these matters, could negatively impact our reputation or otherwise harm our business. - We generally rely on patents, copyrights, trademarks, trade secrets, and
trade secretother intellectual property laws to establish and maintain proprietary rights in our technology and products. Although we have been issued numerous patents and have pending patent applications, our patents and other proprietary rights may be challenged, invalidated, circumvented or found insufficient to provide competitive advantages.Furthermore,In addition, many key aspects of our technology are governed by industry-widestandards, whichstandards that areusable by allavailable to marketentrants.participants generally. We also may not obtain patents from pending applications, and any issued patent claims may not be sufficiently broad to protect our technology.Additionally,Furthermore, some U.S. governmental entities and courts haveexpressed ataken the position that U.S. copyright and patent protection shouldbe limitedapply only toprotectinginventions and works of authorship created by humans. Therefore, U.S. copyright or patent protection for inventions or works developed in part orwholly byentirely using generative AI tools may belimited,limited ornot available at all.unavailable.In addition, theThe laws of some foreign countries may not protect our proprietary rights to the same extent asdoU.S. law, and thelawsoutcome of enforcement actions in those jurisdictions may differ from those in the United States. Although we are not dependent on any individualpatentspatent or group ofpatents for particular segments of the business in which we compete,patents, if we are unable to adequately protectourthe proprietary rights to the totality of the features(including aspectsof our products and technologies, including features protected by means other thanby patent rights) in a market,patents, we mayfind ourselvesbe placed at a competitive disadvantage compared toothers who needcompetitors that do not incur thesubstantial expense, time,same costs and effortrequiredtocreatedevelop innovative products that have enabled us to be successful. - Third parties, including customers, have
in the pastasserted and may in the future assert claims or initiate litigationrelatedrelating toexclusive patent, copyright, trademark,patents, copyrights, trademarks, and other intellectual property rightstocovering technologiesand relatedor standardsthat arerelevant tous.our business. Such claims have increased over time due to our growth, developments in patent policy and practice, including at the United States Patent and Trademark Office, and increased intellectual property litigation activity, particularly in the United States. Because of the existence of a large number of patents in the information technology field, the secrecy of some pending patents, and the rapid rate of issuance of new patents, it is not economically practical or even possible to determine in advance whether a product or any of its components infringes or will infringe on the patent rights of others. The asserted claims and/or initiated litigation can include claims against us or our manufacturers, suppliers, or customers, alleging infringement of their proprietary rights with respect to our existing or future products or components of those products. Regardless of the merit of these claims, they can be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into license agreements. Where claims are made by customers, resistance even to unmeritorious claims could damage customer relationships. There can be no assurance that licenses will be available on acceptable terms and conditions, if at all, or that our indemnification by our suppliers will be adequate to cover our costs if a claim were brought directly against us or our customers. Furthermore, because intellectual property litigation may involve significant and unpredictable damages or injunctive relief, claims may be settled for substantial amounts, even when arguably unmeritorious. Our exposure to risks associated with the use of intellectual property may increase as a result of acquisitions because we may have more limited visibility into the development processes or infringement risk management practices associated with acquired technologies. Further,in the past,third parties havemadein some cases asserted infringement and similar claimsafter we haverelating to acquiredtechnologytechnologies that had not been assertedprior to ourbefore the acquisition. Additionally, if we are found to infringe the intellectual property rights of others, are required to indemnify customers, are unable to develop non-infringing technologies, or cannot obtain necessary licenses on commercially reasonable terms, our business, results of operations, or financial condition could be materially harmed. For additional information regarding our indemnification obligations, see Note14(e)13(e) to the Consolidated Financial Statements contained in this report. - Many of our commercial offerings
are designed toinclude software or other intellectual property licensed from third parties. We may need to obtain or renew licenses relating to various aspects of these products in the future, and such licenses may not be available on acceptable terms, or at all. The inability to obtaincertainor renew necessary licenses or otherrights orrights, the inability to obtain such licenses or rights on favorable terms, or the need toengage in litigation regardinglitigate thesematters,matters could materially harm our business,operating results, andresults of operations, or financial condition. Moreover, the inclusion in our commercial offerings of software or other intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protectourthe proprietary rightsinassociated with our products. - Cyber attacks, data breaches or other incidents impacting our solutions and IT environment may disrupt our operations, harm our
operatingresultsandof operations or financial condition, and damage our reputation or otherwise materially harm our business; and cyber attacks, data breaches or other incidents on our customers’ or third-party providers’ networks, or in third-party products we use, could result in claims of liability against us, give rise to legal and/or regulatory action, damage our reputation or otherwise materially harm our business. - We experience cyber attacks and other attempts to gain unauthorized access on a regular basis to (i) our products and services (together, our “solutions”) and (ii) the servers, data centers, networks, systems, and cloud-based services operated or enabled by us, or by third parties upon which we rely, on or through which our and third-party data are stored, processed, or can be accessed (collectively, our “IT environment”). We anticipate continuing to be increasingly subject to such attempts as cyber attacks become more
sophisticatedsophisticated, numerous, and difficult to predict and protect against. Furthermore, the rapid emergence, widespread dissemination, and maturation of AI capabilities have led to increases in the speed, scale, and effectiveness of cyber attacks or other attempts to gain unauthorized access. Such increases are expected to continue, further reducing the time to identify and mitigate threats. Despite our active implementation of security and other measures, our solutions and IT environment have been, and continue to be, vulnerable to cyber attacks, incidents, data breaches, malware, inadvertent error, disruptions, failures, physical security breaches, tampering or other theft or misuse, including byemployees,malicious actors (including criminals and activists) and by insider threats (including employees and contingentworkers, and malicious actors.workers). Additionally, nation-state actors or their agents have in the past successfully attacked our solutions and IT environment and have also exploited vulnerabilities in our solutions to carry out attacks, and we anticipate that these attacks and the exploitation of vulnerabilities in our solutions will continue and may intensify during periods of diplomatic or armed conflict or other geopolitical tensions. Further, a cyber attack, vulnerability exploitation, or other incident could go undetected and persist in ourenvironments,solutions and IT environment, or those of our customers or third-party providers upon which we rely, for extended periods. Cyber-related events have caused, and in the future could result in, compromise to, or the disruption of access to, the operation of our solutions and IT environment or those of our customers or third-party providers upon which we rely, or result inconfidentialconfidential, private or otherwise sensitive information stored on our systems or our customers’ or other third-party systems being improperly accessed, processed, disclosed now (or in the future), or being lost or stolen. Efforts to limit the ability of malicious actors to disrupt the operations of the Internet or undermine our security efforts are costlyto implementand may not be successful. Breaches of security in our solutions or IT environment, our customers’ or third-party providers’ networks, or in third-party products we use, regardless of whether the breach is attributable to a vulnerability in our solutions, a failure by us to timely mitigate or apply a security fix for products we use that are found vulnerable, or a failure to maintain the digital security infrastructure or security tools that protect the integrity of our solutions and IT environment, could, in each case, result in claims of legal and/or regulatory action against us, damage our reputation or otherwise materially harm our business. The occurrence of a cyber attack, data breach or other incident could subject us to direct or indirect liability to our customers, data subjects, suppliers, business partners, employees, and others, give rise to legal and/or regulatory action, could damage our reputation or could otherwise negatively impact our business, any of which could materially harm our business,operating results, andresults of operations, or financial condition. - The
products and services (together, our “solutions”)solutions we sell to customers, the third-party products and components that we integrate into our solutions and use in our operations, and the cloud-based services operated or enabled by us, or by third parties upon which we rely, inevitably contain vulnerabilities or security defects (despite our efforts to prevent and detect them through secure development lifecycle practices, testing, or other means), which have not been remedied or cannot be disclosed without compromising security. Wealsomake prioritization decisions in determining which vulnerabilities or security defects to fix and the timing of these fixes. Even when we prioritize a vulnerability or security defect, in certain instances it has taken, and in the future could take, time for us to develop and test a remedy and the remedy may ultimately be insufficient to fully fix the issue or may be found to create other issues. Rapidly accelerating advances in AI technology are enabling threat actors, or autonomous systems, to identify and exploit vulnerabilities across both software and hardware with little or no delay between discovery and exploitation, including so-called “zero-minute” vulnerabilities, increasing the likelihood and speed of successful cyber attacks. These advances also show AI technology can rapidly chain otherwise low-severity, unrelated vulnerabilities into more severe combined exploits, complicating prioritization of security updates. As a result of these advances in AI technology, the time available to detect, assess and remediate vulnerabilities before exploitation has been significantly reduced or eliminated, increasing the risk of unauthorized access to, or compromise of, solutions we sell to customers, the third-party products and components that we integrate into our solutions and use in our operations, and the cloud-based services operated or enabled by us or by third parties upon which we rely. In addition, workarounds or other mitigation efforts with our solutions and in our and customer environments in certain instances have not been, and in the future may not be,availableavailable, sufficient, orsufficienttimely to protect customers prior to a security update being made available. Vulnerabilities can persist even after we have issued security updates if we have not identified and addressed the root cause of a particular vulnerability, if we are required to issue incomplete or preliminary mitigations as new threats rapidly emerge, if customers have not installed the most recent updates, if the attackers exploited the vulnerabilities before a security update is applied (such as to install additional malware to further compromise customers’ systems), or if a previously patched vulnerability is inadvertently reintroduced due to a security regression during future development or a changed deployment. Additionally, customers may also desire to test security updates before they can be deployed which can delay implementation. When customers do not deploy security updates in a timely manner, use solutions that are end of life and no longer receive security updates, decide not to upgrade to the latest versions of our solutions containing security updates or security enhancements, configure our solutions in insecure ways, or fail to sufficiently monitor activity on those solutions, they are left vulnerable. In addition, we rely on third-party providers of software (including open source) and cloud-based services on which our and third-party data is stored or processed, and we cannot control the timing at which third-party providers remedy vulnerabilities, which could leave us vulnerable. Further, any failure by us to timely implement, or by our customers to timely adopt, post-quantum cryptography in our solutions or IT systems as it becomes available could render existing cryptographic protections ineffective upon the emergence of viable quantum computing, exposing pre-quantum encrypted data and systems to compromise. Failure to comply with internal security policies and standards, including secure development lifecycle practices, failure to prevent or promptly mitigate vulnerabilities and security defects, failure of companies that we have acquired to have adequate organizational security practices, prioritization errors in remedying vulnerabilities or security defects, failure of third-party providers to remedy vulnerabilities or security defects, or customers not deploying security updates in a timely manner, deciding not to upgrade solutions, or configuring our solutions in insecurewaysways, could, in each case, result in claims of legal and/or regulatory action against us, damage our reputation, or otherwise materially harm our business. - Global privacy, data, and cybersecurity laws are extensive, complex, and constantly evolving, making compliance both difficult and costly. In addition, evolving legal requirements restricting or controlling the collection, processing,
useuse, sharing, access, or cross-border transmission of data, including regulation of cloud-based services, could materially affect our customers’ ability to use, and our ability to sell, our products and services. The interpretation and application of these laws in some instancesisare uncertain, and our legal obligations andregulatory obligationscustomer requirements are subject to frequent changes. For example, the European For example, the EuropeanUnion’s (“EU”) General Data Protection Regulation (“GDPR”)appliesand Data Act apply to our activities conducted from an establishment in the EU or related to products and services offered in the EU and imposes a range of compliance obligations regarding the handling of personal and industrial data for both ourselves and our customers. Additionally, we are subject toCalifornia’s Consumerthe California Privacy Rights Act, Singapore’s Personal Data Protection Act, and other laws, regulations, and obligations around the world that govern the handling ofpersonal data.data and cybersecurity. Our actual or perceived failure to comply with applicable laws and regulations or other obligations relating to the use of data and protecting data from unauthorized access, use, or other processing, could subject us to claims of liability,orgive rise to legal and/or regulatory action, damage our reputation, and/ or otherwise negatively impact our business, any of which could materially harm ouroperatingresultsandof operations or financial condition.- Our business,
operating results, andresults of operations, or financial condition could be materially harmed by evolving regulatory uncertainty or obligations applicable to our products and services. - Changes in global regulatory requirements applicable to the industries and sectors in which we
operate, in the United States and in other countries,operate could materially affect our operations and the sales and use of our products and services. In particular, economic sanctions and changes to export and import control requirements have impacted and may continue to impact our ability to sell and support our products and services in certain jurisdictions. In addition, changes in telecommunications regulations could impact our service provider customers’ purchase and use of our products and services, and they could also impact sales of our own regulated offerings. Government and othercustomers'customers’ procurement policies, priorities,regulations,technology initiatives and/or other obligations often give rise to evolving privacy, cybersecurity, operational resilience, data governance, sourcing, or other requirements; the failure or delay in meeting and maintaining compliance with such requirements could negatively impact our business, including by limiting our ability to sell products and services, directly or indirectly, to public sector, critical infrastructure, and other customers. Additional areas of uncertainty that could impact sales of our products and services include laws, regulations, or customer procurement requirements related to encryption technology, data, AI, privacy, cybersecurity, sovereignty, localization, operational resilience, environmental sustainability (including climate change), human rights, product certification, product and digital accessibility, country of origin,andsourcing, nationalsecuritysecurity, and other security controls applicable to our offerings and supply chain. Changes in regulatory requirements or our actual or perceived failure to comply (or to enable our customers to comply when using our offerings) with applicable laws, regulations, or other obligations could materially harm our business,operating results, andresults of operations, or financial condition. - •Fluctuations in demand for our products and services, especially with respect to service providers and Internet businesses, in part due to changes in the global economic environment
- •Changes in sales and implementation cycles for our products and reduced visibility into our customers’ spending plans and associated revenue
- •The overall movement toward industry consolidation among both our competitors and our customers
- •The introduction and market acceptance of new technologies and products, and our success in new and evolving markets, and in emerging technologies, including AI, as well as the adoption of new standards
- •Variations in sales channels, product costs, mix of products sold, or mix of direct sales and indirect sales
- •The timing, size, and mix of orders from customers
- •Manufacturing and customer lead times
- •Benefits anticipated from our investments
- As a consequence, operating results for a particular future period are difficult to predict, and, therefore, prior results are not necessarily indicative of results to be expected in future periods.
- Our operating results in one or more segments may also be affected by uncertain or changing economic conditions particularly germane to that segment or to particular customer markets within that segment. In addition, previous reports of certain intelligence gathering methods of the U.S. government could affect customers’ perception of the products of IT companies which design and manufacture products in the United States.
- As a result of a variety of factors discussed in this report, our revenue for a particular quarter is difficult to predict, which can be exacerbated during periods when the global macroenvironment is challenging and can result in market uncertainty. Our revenue may grow at a slower rate than in past periods, or decline as it did in certain prior periods on a year-over-year basis. We have also experienced periods of time during which shipments have exceeded net bookings or manufacturing issues have delayed shipments, leading to nonlinearity in shipping patterns. In addition to making it difficult to predict revenue for a particular period, nonlinearity in shipping can increase costs, because irregular shipment patterns result in periods of underutilized capacity and periods in which overtime expenses may be incurred, as well as in potential additional inventory management-related costs.
- These increases in our inventory and purchase commitments to shorten lead times could also lead to potential material excess and obsolete inventory charges or other negative impacts to our product gross margin in future periods if product demand significantly decreases for a sustained duration, we are unable to generate demand for certain products planned for development, or we are unable to continue to mitigate the remaining supply chain exposures. We plan our operating expense levels based primarily on forecasted revenue levels. These expenses and the impact of long-term commitments are relatively fixed in the short term. A shortfall in revenue could lead to operating results being below expectations because we may not be able to quickly reduce these fixed expenses in response to short-term business changes.
- In addition, vendors may be under pressure to allocate product to certain customers for business, regulatory or political reasons, and/or demand changes in agreed pricing as a condition of supply.
- During periods of shortages or delays the price of components may increase, or the components may not be available at all, and we may also encounter shortages if we do not accurately anticipate our needs.
- Manufacturing capacity and component supply constraints could be significant issues for us as they have been in certain prior periods. On August 26, 2025, we settled a legal dispute with a supplier relating to purchase obligations arising under long-term supply arrangements, which resulted in a charge to product cost of sales, which is described in Note 21 to the Consolidated Financial Statements. Product demand conditions for future periods can be difficult to predict or may persist longer than anticipated.
- •Our ability to reduce production costs
- •Sales discounts
- •Changes in shipment volume
- •Changes in distribution channels
- •Increased warranty or royalty costs
- •Increased amortization of purchased intangible assets, especially from acquisitions
- Sales to the service provider and cloud market are especially volatile, and weakness in orders from this industry may harm our operating results and financial condition.
- Sales to the service provider and cloud market have been characterized by large and sporadic purchases, especially relating to our router sales and sales of certain other Networking and Collaboration products, in addition to longer sales cycles.
- These market factors represent a competitive threat to us. We compete with numerous vendors in each product category. The overall number of our competitors providing niche product solutions may increase. Also, the identity and composition of competitors may change as we increase our activity in newer product areas, and in key priority areas.
- The inherent nature of networking requires interoperability. As such, we must cooperate and at the same time compete with many companies.
- When facing component supply-related challenges, we have in the past and may in the future increase our efforts in procuring components or enter additional purchase commitments with contract manufacturers and suppliers in order to meet customer expectations.
- Additionally, if our costs associated with our software subscription offerings were to significantly increase, our business, results of operations and financial condition may be negatively impacted.
- We have also been seeking to meet the evolving needs of customers which include offering our products and solutions in the manner in which customers wish to consume them.
- The success of new products and services depends on several factors, including proper new product and service definition, component costs, timely completion and introduction of these products and services, differentiation of new products and services from those of our competitors, and market acceptance of these products and services.
- •Potential difficulties in completing projects associated with in-process research and development intangibles
- •Difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions
- •Insufficient revenue to offset increased expenses associated with acquisitions
- •Use a substantial portion of our cash resources, or incur debt
- •Significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition
- •Assume liabilities
- •Record goodwill and intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges
- •Incur amortization expenses related to certain intangible assets
- •Incur large write-offs and restructuring and other related expenses
- •Become subject to intellectual property or other litigation
- Prior acquisitions have resulted in a wide range of outcomes, from successful introduction of new products and technologies to a failure to do so. In addition, our effective tax rate for future periods is uncertain and could be impacted by mergers and acquisitions.
- Several of our competitors may have greater resources, including technical and engineering resources, than we do. Demand for these types of service, support, or financing contracts may increase in the future. There can be no assurance that we can provide products, service, support, and financing to effectively compete for these market opportunities. Further, entry into other markets has subjected and will subject us to additional risks, particularly to those markets, including the effects of general market conditions and reduced consumer confidence. For example, as we add direct selling capabilities globally to meet changing customer demands, we will face increased legal and regulatory requirements.
- There can be no assurance we will realize the expected benefits from these strategic alliances or from joint ventures. If successful, these relationships may be mutually beneficial and result in industry growth. However, alliances carry an element of risk because, in most cases, we must compete in some business areas with a company with which we have a strategic alliance and, at the same time, cooperate with that company in other business areas.
- Our future results could be negatively impacted by a variety of political, economic or other factors relating to our operations inside and outside the United States, any or all of which could materially harm our operating results and financial condition, including the following: impacts from global central bank monetary policy; issues related to the political relationship between the United States and other countries that can affect regulatory matters, affect the willingness of customers in those countries to purchase products from companies headquartered in the United States or affect our ability to procure components if a government body were to deny us access to those components; government-related disruptions or shutdowns; the challenging and inconsistent global macroeconomic environment; foreign currency exchange rates; geopolitical tensions (including China-Taiwan relations); political or social unrest; economic instability or weakness or natural disasters in a specific country or region, including economic challenges in China and global economic ramifications of Chinese economic difficulties; environmental protection regulations (including new laws and regulations related to climate change); trade protection measures, such as tariffs; other legal and regulatory requirements, some of which may affect our ability to import our products to, export our products from, or sell our products in various countries or affect our ability to procure components; political considerations that affect service provider and government spending patterns; health or similar issues, including pandemics or epidemics; difficulties in staffing and managing international operations; and adverse tax consequences, including imposition of withholding or other taxes on our global operations.
- Most of our sales are on an open credit basis, with typical payment terms of 30 days in the United States, and, because of local customs or conditions, longer in some markets outside the United States. Beyond our open credit arrangements, we have also experienced demands for customer financing and facilitation of leasing arrangements. Our loan financing arrangements may include not only financing the acquisition of our products and services but also providing additional funds for other costs associated with network installation and integration of our products and services. In the past, there have been significant bankruptcies among customers both on open credit and with loan or lease financing arrangements, particularly among Internet businesses and service providers, causing us to incur economic or financial losses. Additionally, to the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers’ ability to pay could be adversely impacted, which in turn could materially harm our business, operating results, and financial condition.
- We maintain an investment portfolio of various holdings, types, and maturities. If such investments suffer market price declines, as we experienced with some of our investments in the past, we may recognize in earnings the decline in the fair value of our investments below their cost basis. We could lose our entire investment in these companies.
- The loss of services of any of our key personnel; the inability to retain and attract qualified personnel in the future; or delays in hiring required personnel, particularly in engineering and sales fields, could make it difficult to meet key objectives, such as timely and effective product introductions.
- Any claim, litigation or governmental investigation can be costly, lengthy, and disruptive to normal business operations. For example, on August 26, 2025, we settled a legal dispute with a supplier relating to purchase obligations arising under long-term supply arrangements, which resulted in a charge to product cost of sales, which is described in Note 21 to the Consolidated Financial Statements. Moreover, the results of complex legal proceedings are difficult to predict, and management's view of these matters may change in the future.
- As is the case with leading products around the world, our products are subject to efforts by third parties to produce counterfeit versions of our products. While we work diligently with law enforcement authorities in various countries to block the manufacture of counterfeit goods and to interdict their sale, and to detect counterfeit products in customer networks, and have succeeded in prosecuting counterfeiters and their distributors, resulting in fines, imprisonment and restitution to us, there can be no guarantee that such efforts will succeed. While counterfeiters often aim their sales at customers who might not have otherwise purchased our products due to lack of verifiability of origin and service, such counterfeit sales, to the extent they replace otherwise legitimate sales, could negatively impact our operating results.
- Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The Organisation for Economic Co-operation and Development (OECD), an international association comprised of 38 countries, including the United States, has made changes, including a Pillar Two framework that imposes a minimum tax rate of 15% in each taxing jurisdiction, and is contemplating additional changes to numerous long-standing tax principles. There can be no assurance that these changes and any contemplated changes if finalized, once adopted by countries, will not have an adverse impact on our provision for income taxes. Further, as a result of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries was subject to reduced tax rates. Our failure to meet these commitments could adversely impact our provision for income taxes.
- Also certain of our customers, suppliers and logistics centers are located in regions that have been or may be affected by earthquake, tsunami and flooding or other weather-related activity which in the past has disrupted, and in the future could disrupt, the flow of supply chain components and delivery of products. In addition, global climate change may result in significant natural disasters occurring more frequently and/or with greater intensity, such as drought, wildfires, storms, sea-level rise, changing precipitation, and flooding. We have not to date experienced a material event as a result of these kinds of natural disasters; however, the occurrence of any such event in the future could materially harm our business, operating results, and financial condition.
- Although we have been issued numerous patents and other patent applications are currently pending, there can be no assurance that any of these patents or other proprietary rights will not be challenged, invalidated, or circumvented or that our rights will, in fact, provide competitive advantages to us. In addition, there can be no assurance that patents will be issued from pending applications or that claims allowed on any patents will be sufficiently broad to protect our technology. The outcome of any actions taken in these foreign countries may be different than if such actions were determined under the laws of the United States.
- These assertions have increased over time as a result of our growth and the general increase in the pace of patent claims assertions, particularly in the United States. Furthermore, because of the potential for high court awards, including injunctive relief, that are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims settled for significant amounts. If any infringement or other intellectual property claim made against us by any third party is successful, if we are required to indemnify a customer with respect to a claim against the customer, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially harmed. Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we have a lower level of visibility into the development process with respect to such technology or the care taken to safeguard against infringement risks.
- It may be necessary in the future to seek or renew licenses relating to various aspects of these products. There can be no assurance that the necessary licenses would be available on acceptable terms, if at all.
- Furthermore, the emergence and maturation of AI capabilities has led to new and/or more effective methods of cyber attacks.
- Global privacy and data protection-related laws and regulations, including cybersecurity laws, are evolving, extensive, and complex. Compliance with these laws and regulations is difficult and costly.
- Changes in service gross margin may result from various factors such as changes in the mix between technical support services and
advancedprofessional services, as well as the timing of technical support service contract initiations and renewals, the addition of personnel and other related costs, and other resources to support higher levels of service business in future periods.