01—Abstract
Summary
Summary of the 10-K filed September 14, 2011. Cited figures are marked; the original filing is the authoritative source.
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 billiona.
This growth was driven by a 6.5%b 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 millionc, 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.
02—Key points
Key Highlights
- Net sales grew by 7.9% to $43.2 billion, driven by both product and service revenue.
- Service revenue experienced a significant increase of 14.1%, indicating a growing importance of recurring revenue streams.
- Emerging Markets and Asia Pacific Markets showed strong year-over-year net sales growth of 13.7% and 12.2%, respectively.
- Total gross margin declined by 2.6 percentage points to 61.4%, impacted by increased discounts, pricing pressures, and unfavorable product mix.
- Significant restructuring and other charges of $799 million were incurred, primarily related to workforce reductions and business realignments.
- Net income decreased by 16.4% to $6.49 billion, and diluted EPS fell by 12.0% to $1.17.
- The company continues to invest in strategic growth areas like collaboration and data center virtualization, with these segments showing strong revenue increases.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Cisco Systems, Inc. kept $0.15.
- Revenue$43.22B100.0%
- Cost of revenue−$16.68B38.6%
- Gross profit$26.54B61.4%
- Operating costs−$18.86B43.6%
- Operating income$7.67B17.8%
- Interest, other & tax−$1.18B2.7%
- Net income$6.49B15.0%
Where FY2011 revenue went
$43.22B- Cost of revenue: $16.68B, 39% of revenue
- Other operating costs: $13.04B, 30% of revenue
- Net income: $6.49B, 15% of revenue
- R&D: $5.82B, 13% of revenue
- Interest, other & tax: $1.18B, 2.7% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed September 14, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $43.22B$40.04B | +7.9% |
| Cost of Revenue | $16.68B$14.40B | +15.9% |
| Gross Profit | $26.54B$25.64B | +3.5% |
| R&D Expenses | $5.82B— | — |
| Operating Expenses | $18.86B$16.48B | +14.5% |
| Operating Income | $7.67B$9.16B | −16.3% |
| Interest Expense | $628.00M$623.00M | +0.8% |
| Net Income | $6.49B$7.77B | −16.4% |
| EPS (Basic) | $1.17$1.36 | −14.0% |
| EPS (Diluted) | $1.17$1.33 | −12.0% |
| Shares Outstanding (Basic) | 5.53B5.73B | −3.5% |
| Shares Outstanding (Diluted) | 5.56B5.85B | −4.9% |
05—Questions
Frequently Asked Questions
What were Cisco's key financial performance highlights for fiscal year 2011?
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.
What are Cisco's strategic priorities for future growth?
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.
What is the company's outlook on operating expenses and profitability?
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.
How did Cisco manage its balance sheet and cash flow in fiscal year 2011?
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.
06—Continue