10-KPeriod: FY2011

CISCO SYSTEMS, INC. Annual Report, Year Ended Jul 30, 2011

Filed September 14, 2011For Securities:CSCO

Summary

Cisco Systems, Inc. (CSCO) reported strong top-line growth in its fiscal year ended July 30, 2011, with total net sales increasing by 7.9% to $43.2 billion. This growth was driven by a 6.5% increase in product revenue and a robust 14.1% rise in service revenue, indicating a growing reliance on its service offerings. Geographically, all segments saw net sales increases, with Emerging Markets and Asia Pacific Markets demonstrating particularly strong growth. However, the company experienced a decline in gross margin by 2.6 percentage points, primarily due to increased sales discounts, unfavorable product pricing, and a shift in product mix. This was coupled with a significant increase in operating expenses, including substantial restructuring and other charges of $799 million, which led to a 16.4% decrease in net income and a 12.0% drop in diluted earnings per share. The company highlighted strategic investments in five foundational priorities: core routing and switching, collaboration, data center virtualization and cloud, video, and architectures for business transformation, while also initiating significant cost-cutting measures, including a workforce reduction, to align its operations with market transitions.

Financial Statements
Beta
Revenue$43.22B
Cost of Revenue$16.68B
Gross Profit$26.54B
R&D Expenses$5.82B
Operating Expenses$18.86B
Operating Income$7.67B
Interest Expense$628.00M
Net Income$6.49B
EPS (Basic)$1.17
EPS (Diluted)$1.17
Shares Outstanding (Basic)5.53B
Shares Outstanding (Diluted)5.56B

Key Highlights

  • 1Net sales grew by 7.9% to $43.2 billion, driven by both product and service revenue.
  • 2Service revenue experienced a significant increase of 14.1%, indicating a growing importance of recurring revenue streams.
  • 3Emerging Markets and Asia Pacific Markets showed strong year-over-year net sales growth of 13.7% and 12.2%, respectively.
  • 4Total gross margin declined by 2.6 percentage points to 61.4%, impacted by increased discounts, pricing pressures, and unfavorable product mix.
  • 5Significant restructuring and other charges of $799 million were incurred, primarily related to workforce reductions and business realignments.
  • 6Net income decreased by 16.4% to $6.49 billion, and diluted EPS fell by 12.0% to $1.17.
  • 7The company continues to invest in strategic growth areas like collaboration and data center virtualization, with these segments showing strong revenue increases.

Frequently Asked Questions

Cisco reported a 7.9% increase in net sales to $43.2 billion, with service revenue growing by 14.1%. Geographically, Emerging Markets and Asia Pacific Markets showed strong growth. However, gross margin decreased by 2.6 percentage points due to pricing pressures and mix shifts, and net income fell by 16.4% due to higher operating expenses and significant restructuring charges.

Cisco is focusing on five foundational priorities: leadership in its core routing and switching business (including security and mobility solutions), collaboration, data center virtualization and cloud, video, and architectures for business transformation. The company is aligning its resources and strategy to capitalize on market transitions in these areas.

Cisco incurred substantial restructuring and other charges in fiscal 2011 and plans further expense reductions to improve its cost structure. While sales grew, increased operating expenses and margin pressures impacted profitability. The company is actively managing its cost structure while investing in strategic growth initiatives, anticipating a reduction in its annualized operating expense run rate by approximately $1 billion.

Cisco generated $10.1 billion in cash from operations and ended the fiscal year with $44.6 billion in cash and cash equivalents and investments. The company continued its active stock repurchase program, repurchasing $6.8 billion of common stock, and also declared its first cash dividend. The company's strong liquidity position allows for strategic investments, acquisitions, and shareholder returns.