10-QPeriod: Q1 FY2011

CISCO SYSTEMS, INC. Quarterly Report for Q1 Ended Oct 30, 2010

Filed November 23, 2010For Securities:CSCO

Summary

Cisco Systems, Inc. reported solid revenue growth of 19.2% year-over-year for the first quarter of fiscal year 2011, reaching $10.75 billion. This growth was driven by strong performance across all geographic segments and product categories, particularly Switches and New Products (collaboration and data center offerings). However, gross margin percentage saw a decline of 2.5 percentage points to 62.8%, primarily due to higher sales discounts, unfavorable product mix, and carryover effects from fiscal 2010 supply constraints. Despite challenges like slowing business momentum in certain European markets and public sector segments, Cisco's financial position remains robust with $38.9 billion in cash and cash equivalents and investments. The company also continues its significant share repurchase program, authorizing an additional $10 billion in buybacks. Looking ahead, Cisco anticipates slower revenue growth in the second quarter of fiscal 2011 and potential increases in operating expenses as a percentage of revenue, which may lead to a year-over-year decline in operating income, net income, and earnings per share.

Financial Highlights

52 data points
Beta

Revenue

$10.75B

62.8% Gross Margin

Net Income

$1.93B

18.0% Net Margin

EPS (Diluted)

$0.34

Total Assets

$80.02B

Cash & Equivalents

$3.80B

Free Cash Flow

$1.34B

Financial Statements
Beta
Revenue$10.75B
Cost of Revenue$4.00B
Gross Profit$6.75B
Operating Expenses$4.40B
Operating Income$2.35B
Interest Expense$166.00M
Net Income$1.93B
EPS (Basic)$0.34
EPS (Diluted)$0.34
Shares Outstanding (Basic)5.59B
Shares Outstanding (Diluted)5.67B

Key Highlights

  • 1Net sales increased by 19.2% year-over-year to $10.75 billion, demonstrating strong top-line growth.
  • 2Gross margin percentage declined by 2.5 percentage points to 62.8% due to pricing pressures, product mix, and supply chain impacts.
  • 3Operating expenses as a percentage of revenue decreased slightly to 41.0%, indicating efficient cost management relative to revenue growth.
  • 4Diluted earnings per share increased by 13.3% to $0.34, reflecting both net income growth and a reduced share count from repurchases.
  • 5The company ended the quarter with a substantial cash and investment balance of $38.9 billion, providing financial flexibility.
  • 6Cisco announced an additional $10 billion stock repurchase authorization, underscoring its commitment to returning capital to shareholders.
  • 7Management anticipates slower revenue growth in the next quarter and potential year-over-year declines in profitability due to market headwinds.

Frequently Asked Questions

Cisco Systems reported a 19.2% year-over-year increase in net sales, reaching $10.75 billion. This growth was driven by strong sales across all geographic segments and product categories, including Routers, Switches, and New Products like collaboration and data center offerings. Service revenue also saw a healthy increase.

Cisco's gross margin percentage decreased by 2.5 percentage points to 62.8%. This was primarily attributed to higher sales discounts, unfavorable product mix, and lingering costs from fiscal 2010 supply chain constraints. Management expects gross margins to continue to fluctuate and could be impacted by market adjacencies with typically lower margins.

Operating expenses as a percentage of revenue decreased slightly to 41.0%, with R&D and G&A expenses growing slower than revenue. However, the company anticipates operating expenses as a percentage of revenue to increase in the next quarter due to revenue growth projections being lowered. This, combined with slower revenue growth, may lead to a year-over-year decline in operating income, net income, and EPS in the second quarter of fiscal 2011.

Cisco maintains a strong financial position with $38.9 billion in cash, cash equivalents, and investments. The company continues its aggressive share repurchase program, authorizing an additional $10 billion. Cisco also plans to begin paying a cash dividend in fiscal year 2011, indicating a focus on returning capital to shareholders and financial flexibility.