10-QPeriod: Q1 FY2008

CISCO SYSTEMS, INC. Quarterly Report for Q1 Ended Oct 27, 2007

Filed November 20, 2007For Securities:CSCO

Summary

Cisco Systems, Inc. (CSCO) reported strong financial results for the first quarter of fiscal year 2008, ending October 27, 2007. Net sales increased by a significant 17% year-over-year to $9.55 billion, driven by robust growth in product sales (up 15.5%) and accelerated service revenue growth (up 23.7%). This performance was geographically balanced, with notable strength in the United States, Europe, and Asia Pacific markets, although Japan saw a decline. The company demonstrated improved profitability with net income rising 37% to $2.21 billion, or $0.35 per diluted share. This was partly boosted by a $162 million tax benefit from settling U.S. income tax matters. Cisco continues to invest in innovation, particularly in advanced technologies like unified communications and video systems, which are showing strong sales growth, contributing to the company's strategic evolution into new markets. Operationally, Cisco maintained strong gross margins and improved its Days Sales Outstanding (DSO) to 33 days, indicating efficient working capital management. The company also continued its aggressive share repurchase program, authorizing an additional $10 billion in November 2007, underscoring its commitment to returning value to shareholders. While the company reported a slight increase in operating expenses due to headcount additions for investment in sales and R&D, the overall financial health and growth trajectory appear positive.

Key Highlights

  • 1Net sales increased by 16.7% to $9.55 billion compared to the prior year's quarter.
  • 2Net income grew by 37.0% to $2.21 billion, resulting in diluted earnings per share of $0.35.
  • 3Service revenue saw a substantial increase of 23.7% year-over-year, reaching $1.54 billion.
  • 4Advanced technologies product sales increased by 26.8%, indicating strong adoption of newer product lines.
  • 5Days Sales Outstanding (DSO) improved to 33 days from 38 days in the prior year, demonstrating effective receivables management.
  • 6The company repurchased $3.0 billion of its common stock during the quarter and authorized an additional $10 billion in repurchases.
  • 7A $162 million tax benefit was recognized due to the settlement of certain U.S. income tax matters.

Frequently Asked Questions

Cisco's net sales increased by 16.7% to $9.55 billion for the three months ended October 27, 2007, compared to the same period in the previous year. This growth was driven by a 15.5% increase in product sales, notably in advanced technologies, and a significant 23.7% rise in service revenue. Growth was observed across most geographic theaters, with particularly strong performance in the United States and Canada, and the Asia Pacific region.

Cisco's profitability significantly improved, with net income increasing by 37.0% to $2.21 billion, or $0.35 per diluted share. This increase was supported by a higher gross margin percentage (64.6% vs. 63.9%), driven by lower manufacturing costs and higher shipment volumes, partially offset by increased sales discounts. The company also benefited from a $162 million tax benefit related to the settlement of U.S. income tax matters.

Cisco continues to demonstrate a strong commitment to returning capital to shareholders. During the quarter, the company repurchased $3.0 billion of its common stock. Furthermore, on November 15, 2007, the Board of Directors authorized an additional $10 billion for stock repurchases, signaling confidence in the company's financial position and future prospects.

Cisco is actively investing in future growth through continued research and development and strategic acquisitions. Key areas of focus include advanced technologies such as unified communications and video systems, which are showing strong sales growth. The company is also prioritizing emerging technologies, expanding its service offerings, and increasing its presence in emerging markets. Investments in headcount for sales and R&D reflect this forward-looking strategy.