Analyst Conference Summary

Cisco Systems

conference date: August 7, 2007 @ 1:30 PM PT
for quarter ending: July 28, 2007 (4th quarter fiscal 2007)

Forward-looking statements

Overview: Another great quarter with results well above guidance. And raised guidance for Q1 fiscal 2008 and all of fiscal 2008.

Basic data:

Revenues were $9.4 billion, up 5.6% sequentially from $8.9 billion and up 18.1% from 8.0 billion year-earlier.

Net income was $1.9 billion, up 1.6% sequentially from $1.87 billion and up 25% from $1.5 billion year-earlier.

Earnings per share (EPS) were $0.31, up 3.3% sequentially from $0.30 and up 24% from $0.25 year-earlier.

Cash, equivalents and investments ended at $22.3 billion, up $4.5 billion from year-earlier.


Long term guidance is for 12% to 17% year-over-year growth, assuming solid global economy.

Fiscal 2008 expectation is 13% to 15% growth year-over-year. Tax rate 24%.

Q1 fiscal 2008 guidance to revenues of $9.45 billion to $9.55 billion (16% growth year-over-year). Share count flat to up 50 million shares. Q1 Non-GAAP gross margins approximately 65%. Cash flow from operation $700 to $900 million per month.

Conference Highlights:

Stongest quarter we have seen in years.

Non-GAAP results were given as $2.3 billion net income and $0.36 EPS.

Cisco repurchased 54 million of its shares for $1.5 billion.

Cash flows from operations were $2.7 billion.

Acquisitions of WebEx Communications, IronPort Systems, and BroadWare Technologies were completed in the quarter.

Many new products were introduced in the quarter. Many major customer announcements were repeated.

Product sales were $7.9 billion; service sales $1.5 billion. Cost of sales was $3.3 billion. Gross margin was $6.1 billion. Operating expenses were $3.8 billion. Operating income was $2.3 billion. Interest income was $2.3 billion. Income tax provision was $0.6 billion.

Non-GAAP Gross magin was 65.2%, up from 64.5% in prior quarter.

Inventories at $1.3 billion declined slightly year-over-year, as did accounts payable. Accounts receivable increased to $4.0 billion from $3.3 billion year-earlier.

Order growth was stonger than revenue growth; book to bill was over 1. Growth was strong across. $3.9 billion backlog at end of quarter.

Routing 14% year-over-year revenue growth.$1.9 Billion.

Switching 18% revenue growth.$3.3 billion.

Advanced technology 24% revenue growth. $2.2 billion. Developing waves of these technologies. Four of 5 categories had revenue growth over 20% for year. Believes gaining market share in almost all categories. Unified Communications revenue grew low 30s. Storage revenue grew 30%. Wireless 20s. Networked Home 20s. Security 20% (all y/y).

Other $0.5 billion revenue.

Services had 19% revenue growth year-over-year.

We see large account IT spending as strong across all customer segments; balance was best we've seen in a while.

Service provider revenues grew in low 20's year-over-year. Video is a growth area. Expect network loads to grow 200% to 300% year-over-year for several years.

Scientific Atlanta grew over 30% year-over-year, $791 million revenue in Q4.

High-end router growth grew to 30% year-over-year.

Global enterprise business was solid.

We are growing while our peers are challenged because of our breadth of products; vision that network is becoming the platform; convergence of data types including video; business and technology architecture approach; end-to-end architecture. Web 2.0 will result in dramatic innovation and productivity increases. Telepresence is very exciting for customers; travel cost reductions often pay for system in less than one year.

Headcount increased to 61,535, well up due to acquisitions.

Geograpically: U.S. order growth rate was in upper teens. U.S. service provider growth approached 30%. Enterprise growth 12%. Federal order growth 40%.

Emerging market orders grew nearly 50% y/y with solid gross margins. Europe growth was in mid teens. Asia Pacific was in low 20s. Japan was flat (and represented only 4% of total business).


General Macroeconomic and financial vertical spending forecast? Global balance is important; global economy is strong. Our overall U.S. business is strong and balanced. U.S. enterprise is about 13% of business. Have seen softness in financial services, automotive, and to a lesser extent retail.

Operating expense management? Looking to manage to hit our operating margin range, but also have to spend enough to take advantage of growth opportunities.

Emerging market impact on gross margins? We are executing extremely well.

All that cash on balance sheet? We can spend to grow in future, both internally and through acquisitions. Will continue buy-backs. We like to keep $10 to $15 billion net cash. We intend to be aggressive in both acquisitions and investments.

What accounts for switching revenue growth? Has exceeded expectations and forecasts because we are in a capital investment cycle. Service providers are building out Ethernet. New platforms to be introduced soon.

Scientific Atlanta growth? Transmission business grew faster than subscriber, and international grew faster than U.S. We still have a lot of momentum. But may not grow as fast as this year, which was exceptional.

Our total forecasts often end up good, but when we try to break down by product or segment, we are often not as accurate.

Software as part of growth? We are a systems business, so 65% of engineers are software engineers. WebEx platform is focussed around collaboration. We will build off that, but it is a different model from packaged software industry.

How does telepresence relate to switch or router sales growth? 60 to 65% of telepresence sales require router or switch hardware upgrade. It is driving productivity internally in Cisco.

Edge product? We have a good pipeline but are not going to do pre-announcements here.

Rapid head count growth? We are always looking for quality engineers and plan to continue headcount growth including bringing in executives from outside the company.

Scientific Atlanta growth rates? Intuition it is 15 to 20% rather than lower earlier guidance, but we really won't know until later in the year.

Margins? Helped by prices firmer than we usually see.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers