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:
GAAP	6,330	6,199
Non-GAAP	6,317	6,202

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

This executive question and answer may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as the development of our markets, the future of networking, Cisco's strategy and positioning, and our ability to foresee market transitions) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry and in various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; increased competition in the networking industry; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; including risks related to our transition to a new manufacturing model; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters; natural catastrophic events; a pandemic or epidemic; achievement of the benefits anticipated from our investments in sales and engineering activities; our ability to recruit and retain key personnel; our ability to manage financial risk; currency fluctuations and other international factors; potential volatility in operating results; and other factors listed in Cisco's most recent reports on Form 10-K and Form 10-Q. The financial information contained in this executive question and answer should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent reports on Form 10-K and Form 10-Q, each as it may be amended from time to time. Cisco's results of operations for the three and twelve months ended July 28, 2007 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this executive question and answer are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this executive question and answer.

This executive question and answer includes non-GAAP net income, non-GAAP net income per share data, and shares used in non-GAAP net income per share calculation.

These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco's results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP net income, non-GAAP net income per share data and shares used in non-GAAP net income per share calculation, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations.

For its internal budgeting process, Cisco's management uses financial statements that do not include employee share-based compensation expense, impact to cost of sales from purchase accounting adjustments to inventory, payroll tax on stock option exercises, compensation expense related to acquisitions and investments, in-process research and development, amortization of purchased intangible assets, significant gains and losses on publicly traded equity securities, the income tax effects of the foregoing, tax effects of post-acquisition integration of purchased intangible assets from significant acquisitions, and significant effects of retroactive tax legislation (such as Cisco's U.S. federal research and development (R&D) tax credit relating to fiscal year 2006 R&D expenses). Cisco's management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco.

For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this executive question and answer furnished today with the Securities and Exchange Commission.

Copyright © 2007 Cisco Systems, Inc. All rights reserved. Cisco, the Cisco logo, Cisco Systems, Catalyst, Linksys and WebEx are registered trademarks or trademarks of Cisco Systems, Inc. and/or its affiliates in the United States and certain other countries. All other trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.