Analyst Conference Summary

conference date: May 6, 2008 @ 1:30 PM Pacific Time
for quarter ending: April 26, 2008 (3rd quarter fiscal 2008)

Forward-looking statements

Overview: Better than the street expected and at midpoint of guidance. GAAP earnings off both sequentially and y/y (year over year).

Basic data (GAAP) :

Revenue was $9.8 billion, flat sequentially from $9.8 billion and up 10% from $8.9 billion year-earlier.

Net income was $1.77 billion, down 14% sequentially from $2.1 billion and down 5% from $1.9 billion year-earlier.

EPS (earnings per share) were $0.29, down 12% sequentially from $0.33 and down 3% from $0.30 year-earlier.

Guidance:

See continuing economic challenges in U.S. Some caution in Europe too. So fiscal Q4 2008 9 to 10% y/y revenue growth. Gross margin 65% non-GAAP. Tax rate 24%. Share count flat to down about 50 million. $700 to $900 million cash flow from operations per month. Interest and other income $140 million. Non-GAAP Operating expenses 36 to 37% of revenue.

Conference Highlights:

Still comfortable with revenue guidance of 12 to 17% revenue growth over next 3 to 5 years. Book to bill ratio was above 1. Order growth was reasonable. Japan had a strong quarter for the first time in a number of years. Cisco is leading Phase II of internet. Believes macroeconomic challenge is short term. Challenges were largely in service providers and with U.S. customers.

Non-GAAP numbers exclude $286 million acquisition-related charge, $268 million employee stock compensation expense, and $174 million amortization of purchased intangibles, offset by $193 positive income tax effect. Net income was $2.3 billion, up 9% from year-earlier, and EPS was $0.38, up 12% from year-earlier.

Cash flow from operations was $3.0 billion. Cash and equivalents ended at $24.4 billion. $2.0 billion was spent on repurchasing shares.. $9.8 billion remained authorized for share repurchases.

New product introductions included ASR 1000 Series Aggregation Services Routers; security products; Mobility Healthcare products; and Apple Mac support for WebEx.

More than 500 TelePresence units have now been ordered since introduction.

Product revenues were $8.2 billion. Service revenues were $1.6 billion.

Routing revenue was up 14% y/y. Switching up 3% y/y. Advanced technology revenue up 17% y/y led by WebEx growth. Service revenues grew in mid-teens. High end routers grew 25%. TelePresence orders grew 1000%. Application Networking 30% y/y.

By segment commercial orders were up 18%, Enterprise up 9%, Service Provider up 6%, and Consumer orders up 13% y/y.

Mid teens growth in India, thirties growth in China. Asia Pacific orders up high teens y/y. Japan up mid-20s. Europe up 14%. U.S. only up only 5% (with service provider sector down 3% y/y). Emerging markets (excludes China, India, Japan) was up 10% y.y.

Cost of sales was $3.5 billion. Gross margin $6.3 billion. R&D expense $1.44 billion, sales and marketing $2.13 billion, general and administrative $0.48 billion, amortization $0.1 billion, for total operating expenses of $4.2 billion. Operating income was $2.14 billion, interest income $0.2 billion. Income tax provision $0.54 billion.

Q&A:

Are you seeing business stabilize? U.S. market did evolve as we thought. We are gaining mind share. We are well positioned for when economy picks back up.

Expenses? We are going to be aggressive in controlling expenses.

April? Typical seasonal pattern, with acceleration during quarter as usual.

Aren't emerging markets actually decelerating growth? Asia-Pacific is accelerating. Japan is back. Emerging markets are always going to be lumpy. There are revenue recognition issues in emerging markets.

Last quarter you said your pipeline was strong. How is it now? It looks very solid. The close rate is not as good as in the past, it takes longer to close deals.

Service Provider color? Service providers revenue ex U.S. grew rapidly. As a whole the fundamentals have not changed. Video will drive the next growth phase. Then collaboration 2.0 will drive another wave. Activity in any quarter will vary. We think we are well set up cycle-wise. 26% growth of high end routers in total, that is a good relationship showing our relevance. Growth in a few quarters will go to mid-teens or above for overall service provider market. Comparisons for orders was most difficult in this quarter, comparisons for revenues will be a tough comparison next quarter.

Enterprise accounts were disintigrating more rapidly several quarters ago. Now they are doing better.

Switch business and Nexus product line? Fixed switching grew 11%. High end switching including Nexus 5000 and 7000 was the challenge. We think it will be exciting 3 to 4 quarters out as they are moved to datacenters. Won't take orders for Nexus 5000 until next month.

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