10-KPeriod: FY2010

CISCO SYSTEMS, INC. Annual Report, Year Ended Jul 31, 2010

Filed September 21, 2010For Securities:CSCO

Summary

Cisco Systems, Inc. (CSCO) in its 2010 Form 10-K, filed on September 20, 2010, reported on its fiscal year ending July 31, 2010. The company continued to solidify its position as a leader in IP-based networking solutions, emphasizing its strategy of expanding into new "market adjacencies" like virtualization, cloud computing, video, and collaboration. Significant strategic acquisitions in fiscal 2010, such as Tandberg for video conferencing and Starent Networks for mobility, underscored this expansion. Financially, the company navigated a challenging global economic environment, with research and development spending remaining robust at $5.3 billion, reflecting a commitment to innovation. Cisco highlighted its diversified customer base across enterprise, service provider, and commercial segments, noting that no single customer accounted for 10% or more of net sales. The company's backlog was reported at $4.1 billion, indicating strong order visibility. While the filing details various risk factors, including intense competition, supply chain challenges, and economic uncertainties, Cisco's extensive product portfolio and strategic investments position it for continued relevance in the evolving IT landscape.

Financial Highlights

54 data points
Beta

Revenue

$40.04B

64.0% Gross Margin

Net Income

$7.77B

19.4% Net Margin

EPS (Diluted)

$1.33

Total Assets

$81.13B

Cash & Equivalents

$4.58B

Free Cash Flow

$9.16B

Financial Statements
Beta
Revenue$40.04B
Cost of Revenue$14.40B
Gross Profit$25.64B
Operating Expenses$16.48B
Operating Income$9.16B
Interest Expense$623.00M
Net Income$7.77B
EPS (Basic)$1.36
EPS (Diluted)$1.33
Shares Outstanding (Basic)5.73B
Shares Outstanding (Diluted)5.85B

Key Highlights

  • 1Cisco continues to invest heavily in R&D ($5.3 billion in FY10) to drive innovation in core routing/switching and advanced technologies.
  • 2Strategic acquisitions in FY10, including Tandberg (video conferencing) and Starent Networks (mobility), signal expansion into key market adjacencies.
  • 3The company is actively pursuing opportunities in emerging trends like virtualization, cloud computing, video, and collaboration.
  • 4A diversified customer base across enterprise, service provider, and commercial segments, with no single customer representing more than 10% of net sales.
  • 5Product backlog stood at $4.1 billion at fiscal year-end 2010, providing a degree of revenue visibility.
  • 6Despite a challenging economic climate, Cisco maintains a broad product and service offering designed to meet evolving customer needs.
  • 7The company relies on an outsourced manufacturing strategy but operates some facilities, notably for set-top box production.

Frequently Asked Questions

Cisco's key strategic priorities involved expanding into 'market adjacencies' beyond its core routing and switching business. This included significant investments and acquisitions in areas like virtualization/cloud computing (e.g., VCE coalition), video and collaboration (e.g., Tandberg acquisition), mobility (e.g., Starent Networks acquisition), and consumer products. The company also continued robust investment in research and development, totaling $5.3 billion for the fiscal year, to fuel innovation across its product lines.

Cisco identified several key risks, including intense competition across its product segments, potential disruptions in its distribution model, and supply chain challenges (e.g., component shortages, longer lead times). The company also cited the volatility of the service provider market, unfavorable economic and geopolitical conditions, and the critical need to continuously develop new products and respond to technological trends and changing customer needs. Additionally, risks related to acquisitions, intellectual property, currency fluctuations, and litigation were highlighted.

Cisco serves a highly diversified customer base across four primary markets: enterprise (including public sector), service providers, commercial (mid-market and small businesses), and consumers. The company emphasized that no single customer accounted for 10% or more of its net sales in the past three fiscal years. Cisco sells its products and services both directly and through a variety of indirect channels, including systems integrators, service providers, resellers, distributors, and retail partners. A substantial portion of sales is conducted through these channel partners.

Cisco primarily utilizes an outsourced manufacturing strategy, relying on independent third-party contract manufacturers for services like assembly and testing. However, they do operate some manufacturing facilities, notably for set-top boxes. The company highlighted challenges in fiscal year 2010 related to longer than normal lead times and component supplier constraints, driven by increasing demand and actions taken during the global economic downturn. Inventory management and supply chain resilience were noted as ongoing areas of focus.