10-QPeriod: Q1 FY2003

CISCO SYSTEMS, INC. Quarterly Report for Q1 Ended Oct 26, 2002

Filed November 21, 2002For Securities:CSCO

Summary

Cisco Systems, Inc. reported strong year-over-year revenue growth for the quarter ended October 26, 2002, with total net sales increasing by 8.9% to $4.85 billion. This growth was driven by a significant rebound in product gross margins, which improved to 69.2% from 59.0% in the prior year period, reflecting better component costs and product mix. Net income also swung from a loss of $268 million in the prior year to a profit of $618 million, with diluted earnings per share improving to $0.08 from a loss of $0.04. The company's liquidity remains robust, with $6.99 billion in cash and cash equivalents and $3.33 billion in short-term investments. Despite the positive financial results, the company continues to face challenges and risks, including market volatility, intense competition, and the ongoing slowdown in the telecommunications service provider market. However, management expresses confidence in its ability to meet its obligations and liquidity requirements for at least the next 12 months, supported by strong operating cash flow and a significant stock repurchase program.

Key Highlights

  • 1Total net sales increased 8.9% year-over-year to $4.85 billion for the quarter ended October 26, 2002.
  • 2Net income turned positive at $618 million ($0.08 per diluted share), a significant improvement from a net loss of $268 million ($0.04 per diluted share) in the prior year quarter.
  • 3Product gross margin improved substantially to 69.2% from 59.0% in the prior year, driven by lower component costs and favorable product mix.
  • 4The company's cash and cash equivalents stood at $6.99 billion, with total investments of $3.33 billion, indicating strong liquidity.
  • 5Operating expenses were managed effectively, with R&D and Sales & Marketing expenses decreasing year-over-year as a percentage of net sales.
  • 6The company repurchased 88 million shares of common stock for $1.1 billion during the quarter, underscoring a commitment to shareholder returns.
  • 7Despite revenue growth, the company continues to highlight risks related to market volatility, competition, and the service provider market slowdown.

Frequently Asked Questions

Cisco Systems reported total net sales of $4.85 billion for the quarter ended October 26, 2002, an increase of 8.9% compared to $4.45 billion for the same period in the prior year. Product sales were $4.01 billion and service revenue was $832 million.

Profitability saw a significant improvement. Cisco reported a net income of $618 million, or $0.08 per diluted share, for the quarter ended October 26, 2002. This is a substantial turnaround from a net loss of $268 million, or $0.04 per diluted share, in the same quarter of the previous year.

Cisco maintained a strong liquidity position. As of October 26, 2002, the company had $6.99 billion in cash and cash equivalents and $3.33 billion in short-term investments, totaling over $10 billion in liquid assets. Operating activities generated $1.07 billion in cash during the quarter.

Cisco highlighted several risks, including ongoing volatility in demand for its products, intense price and product competition, the continued slowdown in capital spending by telecommunications service providers, challenges in managing inventory and purchase commitments, and the potential impact of global economic conditions and political turmoil. The company also noted risks associated with its significant investment portfolio and the ongoing litigation concerning shareholder class actions.