01—Abstract
Summary
Summary of the 10-K filed September 3, 2020. Cited figures are marked; the original filing is the authoritative source.
Cisco Systems, Inc. (CSCO) reported its annual results for the fiscal year ended July 24, 2020.
The company experienced a 5% year-over-year decline in total revenue to $49.3 billiona, primarily driven by an 8% decrease in product revenue, impacted by global macroeconomic weakness and the COVID-19 pandemic. Despite the revenue decline, Cisco demonstrated resilience by improving its gross margin by 1.4 percentage points to 64.3%, attributed to productivity benefits and favorable product mix, partially offset by pricing pressures. Diluted earnings per share saw a modest 1% increase to $2.64, supported by share buybacks and a slight improvement in operating income as a percentage of revenue.
The company continues its strategic transformation towards software and subscription-based offerings, with service revenue showing a 3%b increase. Security products showed robust growth with a 12% increase in revenue. Cisco's focus remains on innovation, particularly in intent-based networking, security, collaboration, and cloud technologies, aiming to provide a highly secure, intelligent platform for its customers.
The company also highlighted its ongoing commitment to returning capital to shareholders through dividends and share repurchases, maintaining a strong liquidity position despite the challenging global economic environment. Key risks highlighted include the ongoing impact of the COVID-19 pandemic on supply chains, demand, and operations, as well as competitive pressures, the need for continuous product innovation, and macroeconomic uncertainties. Management expressed confidence in its strategy and ability to navigate these challenges while investing in priority growth areas.
02—Key points
Key Highlights
- Total revenue decreased by 5% to $49.3 billion, impacted by macroeconomic conditions and the COVID-19 pandemic.
- Gross margin improved by 1.4 percentage points to 64.3%, driven by productivity and product mix.
- Diluted Earnings Per Share (EPS) increased by 1% to $2.64, aided by share repurchases.
- Service revenue grew by 3%, indicating progress in the company's shift towards recurring revenue models.
- Security product revenue increased by 12%, showcasing growth in this key strategic area.
- The company maintains a strong liquidity position with $29.4 billion in cash and investments.
- Significant risk factors include the ongoing impact of the COVID-19 pandemic, supply chain disruptions, and intense competition.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Cisco Systems, Inc. kept $0.23.
- Revenue$49.30B100.0%
- Cost of revenue−$17.62B35.7%
- Gross profit$31.68B64.3%
- Operating costs−$18.06B36.6%
- Operating income$13.62B27.6%
- Interest, other & tax−$2.41B4.9%
- Net income$11.21B22.7%
Where FY2020 revenue went
$49.30B- Cost of revenue: $17.62B, 36% of revenue
- Other operating costs: $11.72B, 24% of revenue
- Net income: $11.21B, 23% of revenue
- R&D: $6.35B, 13% of revenue
- Interest, other & tax: $2.41B, 4.9% of revenue
Kept 23% as net incomeR&D $6.35B · 13%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed September 3, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $49.30B$51.90B | −5.0% |
| Cost of Revenue | $17.62B$19.24B | −8.4% |
| Gross Profit | $31.68B$32.67B | −3.0% |
| R&D Expenses | $6.35B$6.58B | −3.5% |
| Operating Expenses | $18.06B$18.45B | −2.1% |
| Operating Income | $13.62B$14.22B | −4.2% |
| Interest Expense | $585.00M$859.00M | −31.9% |
| Net Income | $11.21B$11.62B | −3.5% |
| EPS (Basic) | $2.65$2.63 | +0.8% |
| EPS (Diluted) | $2.64$2.61 | +1.1% |
| Shares Outstanding (Basic) | 4.24B4.42B | −4.1% |
| Shares Outstanding (Diluted) | 4.25B4.45B | −4.5% |
05—Questions
Frequently Asked Questions
What was Cisco's overall financial performance in fiscal year 2020?
In fiscal year 2020, Cisco experienced a 5% year-over-year decrease in total revenue, reaching $49.3 billion. This decline was primarily attributed to a challenging global economic environment, exacerbated by the COVID-19 pandemic. Despite the revenue dip, the company improved its gross margin to 64.3% and saw a 1% increase in diluted EPS to $2.64.
How did the COVID-19 pandemic impact Cisco's business?
The COVID-19 pandemic significantly impacted Cisco's operations, leading to a 5% revenue decline. Specific impacts included supply chain challenges, component constraints, and disruptions to sales and marketing events. The company also noted changes in customer needs and potential IT spending reductions across various sectors. Cisco responded by offering free trials for its Webex and security technologies and launching a capital business resiliency program.
What are Cisco's key strategic priorities and areas of investment?
Cisco's strategic priorities focus on delivering highly secure, software-defined, automated, and intelligent platforms. Key investment areas include cloud security, cloud collaboration, application insights, and analytics. The company is also focused on accelerating innovation in intent-based networking, 5G, WiFi-6, and artificial intelligence, while continuing to transform its business model towards software and subscription-based offerings.
How is Cisco returning capital to shareholders?
Cisco aims to return a minimum of 50% of its free cash flow annually to shareholders through cash dividends and repurchases of common stock. In fiscal year 2020, the company paid $6.0 billion in dividends and repurchased approximately $2.6 billion of its common stock under its share repurchase program. The company had an outstanding authorized amount of approximately $10.8 billion for future repurchases as of July 25, 2020.
06—Continue