Why did Cisco report a net loss in this quarter when it was profitable in the prior year?

Cisco reported a net loss of $268 million primarily due to a significant impairment charge of $858 million on certain publicly traded securities within its investment portfolio. This charge, combined with the overall decrease in sales and a continued investment in R&D, resulted in a net loss for the quarter.

What is the significance of the two acquisitions made during the quarter?

The acquisitions of Allegro Systems, Inc. and AuroraNetics, Inc. are strategically important. Allegro was acquired to enhance Cisco's VPN and security solutions, while AuroraNetics was acquired to strengthen its high-end routing technologies. These acquisitions indicate Cisco's continued investment in innovation and expanding its product portfolio to meet evolving market demands, particularly in security and high-capacity networking.

What is the company's outlook regarding its financial performance and market conditions?

The company acknowledges the ongoing unfavorable economic conditions and capital spending environment. While it has implemented cost-reduction measures and is focusing on high-growth areas, it anticipates that operating results may continue to fluctuate. Cisco is prioritizing R&D and strategic acquisitions, and it believes its current cash position and operating cash flow will meet its needs for at least the next 12 months. Investors should note the significant risks and uncertainties outlined in the 'Risk Factors' section, including the dependence on overall IT spending and market conditions.

CSCO 10-Q Quarterly Report Q1 FY2002 — Revenue, Net Income, EPS

Q: What is the primary reason for the significant drop in Cisco's net sales compared to the same quarter last year?

The primary reason for the significant year-over-year decline in net sales is the challenging macroeconomic environment and reduced capital spending within the networking industry, which led to a substantial decrease of 38.1% in product sales. While service revenue increased, it could not offset the decline in product revenue.

Summary

Cisco Systems, Inc. (CSCO) reported a significant year-over-year decline in net sales for the first quarter of fiscal year 2002, ending October 27, 2001. Total net sales fell to $4.45 billion from $6.52 billion in the prior year's comparable quarter, a decrease of 31.8%. This decline was primarily driven by a 38.1% drop in product sales, reflecting the challenging macroeconomic environment and reduced capital spending within the networking industry. While services revenue saw a healthy increase of 30.3% to $792 million, it was not enough to offset the broad-based weakness in product demand. The company reported a net loss of $268 million, or $0.04 per diluted share, a stark contrast to the net income of $798 million, or $0.11 per diluted share, in the prior year. This loss was influenced by substantial charges, including a significant impairment on investments. Despite the top-line and bottom-line pressures, Cisco continued its strategic focus on R&D and made two key acquisitions during the quarter: Allegro Systems, Inc. and AuroraNetics, Inc., aimed at enhancing its security and routing technologies. The company also initiated a stock repurchase program, demonstrating a commitment to returning capital to shareholders.

Key Highlights

1Net sales decreased by 31.8% year-over-year to $4.45 billion due to a significant decline in product sales.
2The company reported a net loss of $268 million, compared to a net profit of $798 million in the prior year's quarter.
3Services revenue grew by 30.3% to $792 million, indicating a growing importance of recurring revenue streams.
4The company acquired Allegro Systems, Inc. and AuroraNetics, Inc. to bolster its security and routing technology offerings.
5Cisco announced a $3 billion stock repurchase program and repurchased $350 million of common stock during the quarter.
6An impairment charge of $858 million on certain publicly traded securities impacted the 'Interest and other income (losses), net' line item.
7Operating expenses were reduced due to a restructuring program initiated in the prior fiscal year, with R&D, sales & marketing, and G&A expenses decreasing in absolute dollar terms despite a decline in net sales.

CISCO SYSTEMS, INC. Quarterly Report for Q1 Ended Oct 27, 2001

Summary

Key Highlights

Frequently Asked Questions