CEO John Chambers and CFO Dennis Powell Discuss Cisco's Q1 Fiscal Year 2008 Performance
November 7, 2007
Cisco announced first quarter fiscal year 2008 financial results. John Chambers, chairman and CEO, and Dennis Powell, executive vice president and CFO, had the following to say regarding the company's results and business outlook.
How would you characterize this quarter?
John Chambers: This quarter was another very strong record quarter with very solid balanced results from a product, geographic and customer segment perspective. Again, it was also another record quarter from a revenue, cash generated from operations, GAAP and non-GAAP net income and earnings per share perspective.
We achieved total record revenue of approximately $9.6B, a 17% year-over-year increase. We are obviously pleased with both the growth on the top and bottom lines, as well as the market share gains.
Order growth was solid with product book to bill at approximately 1, which is typical or even at the higher end of Q1s from the prior six fiscal years. Product orders grew approximately 16% year-over-year.
GAAP net income was $2.2B, representing a 37% increase year-over-year. Non-GAAP net income was a record $2.5B, an increase year-over-year of approximately 31%. GAAP EPS were $0.35 and non-GAAP EPS were a record $0.40, which were increases of 35% and 29% respectively year-over-year.
Cash generated from operations was $3.1B, our highest level in history. We repurchased $3B of common stock. And we exited the quarter with $24.7B in cash, cash equivalents, and investments, as compared to $22.3B at the end of Q4FY07.
Cisco had another solid quarter of growth. To what do you attribute these results?
John Chambers: If there are two key takeaways from our Q1 results, the first would be again the unique balance in terms of our business models from both a technology and a business architecture perspective. This balance is illustrated across twenty major product families, four key customer segments and four major geographies. This balance has enabled seventeen consecutive quarters in terms of average order growth in the mid teens or better.
Routing revenue grew year-over-year by 18%, switching revenue grew year-over-year by 8%, and total of all of our advanced technologies' revenue grew year-over-year by approximately 27%. Again, in considering our ability to move into new markets and to achieve both growth and profitability, our advanced technologies' revenue contribution to the top line is greater than 20% larger than the revenue contributions from our routing products.
We now have ten product families with orders and revenue run rates above $1B. And almost all of them continued to gain market share in their respective product categories. Also, 14 of our top 20 product families had year-over-year revenue growth rates for Q1 of 15% or better.
The second takeaway, which is just beginning, and in my opinion will dramatically drive our growth and differentiation versus our peers over the next five plus years, will be phase II of the Internet. We expect this second phase will be driven by collaboration enabled by networked Web 2.0 technologies. In the last several quarters, we believe we have achieved the clear number one position from both a thought leadership and implementation perspective and we clearly intend to expand that position.
We will do our best to provide the product architectures and the expertise to help in the implementation of these collaborative capabilities from a technology and business perspective as well as share with our customers how we have done this internally. In short, we are going to attempt to execute a very similar strategy over the next decade similar to what we did in the early 90s, and as we have previously stated, it powered growth for the next decade. Except the obvious difference for us as a company, is that we are now approaching $40B with over 63,000 employees focused on this opportunity.
Cisco Advanced Technologies revenue continued to grow steadily. Which advanced technologies are leading the charge, and which are next on the horizon for Cisco?
John Chambers: Our first wave of five advanced technologies in Q1 had year-over-year revenue growth of approximately 24%, and in total is now approaching a $7B run rate in terms of revenue-and that is just the first wave. Unified Communications, including the addition of WebEx, continued to lead the way with revenue growth above 70% year-over-year. Unified Communications growth without WebEx was above 40% year-over-year. Storage was up over 20%, wireless and networked home growth were both relatively flat and security growth was in the mid teens.
Our second wave of advanced technologies that includes video systems, application networking systems, etc., is now approaching the $2.5B run rate and grew in the mid 30s year-over-year from a revenue perspective.
Cisco has achieved a unique balance in terms of the company's business models from both a technology and a business architecture perspective. On the customer segment side, how did each segment perform?
John Chambers: From a customer segment perspective, we again saw very solid balance across our commercial market, service provider and enterprise segments. The global commercial market segment remained our most steady and predictable segment with order growth of approximately 25% year-over-year in Q1. The global service provider business remained very strong. Orders from a service provider perspective grew in the high teens year-over-year.
The global enterprise business, which includes public sector, was solid. Our enterprise customer segment orders on a global basis grew in the low double digits year-over-year. From a U.S. perspective, our enterprise business, which includes public sector and federal, orders grew in the mid single digits. Our federal business had a very strong quarter with order growth of approximately 17% year-over-year, while in the rest of the U.S. enterprise order growth was down slightly from a year-over-year perspective.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
|Three Months Ended|
|October 27, 2007||October 28, 2006|
|GAAP net income||$ 2,205||$ 1,608|
|Employee share-based compensation expense||226||225|
|Payroll tax on stock option exercises||11||6|
|Compensation expense related to acquisitions and investments||39||21|
|In-process research and development||3||4|
|Amortization of purchased intangible assets||178||141|
|Total adjustments to GAAP income before provision for income taxes||457||397|
|Income tax effect||(160)||(101)|
|Non-GAAP net income||$ 2,502||$ 1,904|
|Diluted net income per share:|
|GAAP||$ 0.35||$ 0.26|
|Non-GAAP||$ 0.40||$ 0.31|
|Shares used in diluted net income per share calculation:|
Additional reconciliations between GAAP and non-GAAP financial measures are provided in the tables that follow on page 10.
RECONCILIATION OF SHARES USED IN THE GAAP AND NON-GAAP DILUTED NET INCOME PER SHARE CALCULATION
|Three Months Ended|
|October 27, 2007||October 28, 2006|
|Shares used in diluted net income per share calculation - GAAP||6,330||6,199|
|Effect of SFAS 123(R)||(13)||3|
|Shares used in diluted net income per share calculation - Non-GAAP||6,317||6,202|
Most Recent NewsHow The Internet Is Preserving Korea's Cultural Heritage
By Amy Cortese 5/21/2013
Why Power Companies are Delving into Data
By Jason Deign 5/20/2013
Senior Executives Say Cloud-Based Collaboration Leads to Higher Business Performance