Chairman and CEO John Chambers and CFO Frank Calderoni Discuss Cisco Q4 and Fiscal Year End 2008 Performance

August 5, 2008

Cisco announced the fourth quarter and fiscal year end 2008 financial results. John Chambers, chairman and CEO, and Frank Calderoni, CFO, had the following to say regarding the company's results and business outlook.

How would you characterize fiscal year 2008?

John Chambers: First, from a financial point of view, we were very pleased with the solid financial results for fiscal year 2008.

Revenue was a record $39.5 billion, a 13% year-over-year increase. Cash generated from operations was $12.1 billion, a 20% year-over-year increase.

GAAP earnings per share were $1.31, a 12% year-over-year increase. Non-GAAP earnings per share were $1.56, a 16% year-over-year increase.

Second, year-over-year order growth was also solid for the quarter. Product order growth was approximately 12%. Service order growth was approximately 25%. Product book to bill was above 1.

Third, in a year where there were a number of challenges, we were pleased with both our geographic balance and year-over-year order growth for fiscal year 2008.

Our emerging market theater, which does not include Asia, grew in total at approximately 19%. Highlights include Mexico with an order growth of 32% and Russia with order growth of 23%. Brazil grew 48%. Asia Pacific in total grew approximately 20%, with China order growth at approximately 30% and India growth at 32%. European markets order growth was approximately 13%. In the U.S. and Canada, orders grew 9%. Japan orders grew 5%.

Fourth, from a fiscal year 2008 product revenue growth perspective, routing revenue grew 14% year-over-year, again led by high-end routing with CRS-1 revenue growth of approximately 119%. Switching revenue grew 7% year-over-year. Our Advanced Technologies revenue grew 21% year-over-year, led by Unified Communications with revenue growth of 51%, and Application Networking Services with growth of approximately 36%.

Lastly, from a customer segment perspective for fiscal year 2008, Enterprise/Public Sector order growth was approximately 10% year-over-year, Commercial continued strong with 20% order growth year-over-year, and Service Provider order growth was approximately 10%.

How would you characterize fourth quarter fiscal year 2008?

John Chambers: The fourth quarter was a solid quarter for Cisco especially given some challenges that we are all seeing occur in the global marketplace. We continue to feel very comfortable with both our progress in the quarter and our long-term, differentiated strategy as we move into new market adjacencies.

First, from a financial point of view, we were very pleased with the results for the fourth quarter. Revenue was a record $10.4 billion, approximately a 10% year-over-year increase, and it was our first $10 billion quarter from a revenue perspective. Cash generated from operations was $3.5 billion.

GAAP earnings per share were $0.33, a 6% year-over-year increase. Non-GAAP earnings per share were $0.40, an 11% year-over-year increase.

Second, in terms of year-over-year order growth in the fourth quarter, balance was good. Product order growth was approximately 10%. Service order growth was approximately 20%. Product book-to-bill was comfortably above 1.

Third, from a geographic year-over-year order growth perspective, there were a number of positives in the fourth quarter, and also a couple of challenges.

Order growth in Asia Pacific in the fourth quarter was very solid at approximately 19% year-over-year. Highlights include growth in China above 30% and growth in India at approximately 20%. Japan continued its solid momentum in the fourth quarter with order growth of approximately 10% following a strong Q3. Europe had a solid fourth quarter with order growth of approximately 11% despite a more challenging economic environment. For the U.S. and Canada, order growth in the fourth quarter was approximately 7% year-over-year. We were very pleased with the balance across almost all of our emerging market countries. Our Emerging Market theater grew approximately 10% year-over-year.

Fourth, from a fourth quarter year-over-year product revenue growth perspective, routing revenue grew 8% year-over-year, again led by high-end routing with CRS-1 growth of approximately 85%. Switching revenue grew 5% year-over-year. Our Advanced Technologies grew 15% year-over-year, led by Unified Communications with revenue growth of 29%, and Application Networking Services with growth of approximately 30%.

And lastly, from a global customer segment perspective, Enterprise/Public Sector order growth in the fourth quarter was approximately 10% year-over-year, with the Enterprise area growing approximately 13% and the Public Sector area growing 4% year-over-year. Commercial orders continued strong at 17% growth year-over-year and our Service Provider segment grew approximately 5%. U.S Enterprise order growth for the fourth quarter grew year-over-year at 13%, versus third quarter fiscal year 2008 growth at 6%.

How do you view the company's position in the industry and how will you ensure Cisco and customers are benefiting from the longer term strategy?

John Chambers: We believe that we are very well positioned in the industry from a vision, differentiated strategy, and execution perspective. We believe we are entering the next phase of the Internet as growth and productivity will center on collaboration enabled by networked Web 2.0 technologies. We will do our best to provide the product architectures and the expertise to help our customers in the implementation of these collaborative capabilities from a technology and business perspective. We will also share with our customers how we have done this internally. In short, we are going to attempt to execute a strategy over the next decade that is similar to what we did in the early 1990s. As we have said before, execution on this strategy in the 1990s powered our growth for the next decade. We hope to have similar success in executing this strategy over the next few years, with an obvious difference being Cisco is now a far larger company, with a run rate of over $40 billion and with over 66,000 employees focused on this opportunity, and this may affect our growth rates compared to those we have achieved in the past pursuing this strategy. At this time, we believe our execution is on target in terms of results as measured by a customer partnership perspective, market share, and share of our customers' total communications and IT expenditures as the network becomes the platform for delivering these capabilities.

How does the current macroeconomic environment affect Cisco's business?

John Chambers: As we said before, if the market does continue to slow, we believe this will not dramatically change our long term opportunities with our vision of how the industry will evolve and our differentiated strategy. As we head into the next fiscal year, we plan to aggressively invest in new and adjacent markets for the longer term, regardless of how long it takes for the macro environment to rebound. We would not be investing aggressively if we believed that this current slowdown was going to be long in duration, and that we didn't have a high probability of achieving our long term growth objectives.

It is our intent to expand our share of customer spend during these corrections as we have done in the past. As a reminder, during each of the economic slowdowns in the last 15 years, Cisco has always navigated through them very effectively. We did this repeatedly in 1993, 1997, 2001, 2003, and in each scenario we gained both "wallet" share and, in my opinion, profit share. And as a result, we were better positioned coming out of the transitions versus our peers.

We also believe that our opportunities to expand in our current markets and market adjacencies are actually increasing. This is true from the data center to the home market, from the service provider to the small business and consumer.

Therefore, you will continue to see us invest aggressively where appropriate while maintaining our focus on our financial models.



RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(In millions, except per-share amounts)
Three Months Ended Twelve Months Ended
July 26, 2008
 		July 28, 2007
 July 26, 2008
 July 28, 2007
GAAP net income $ 2,014 $ 1,930 $ 8,052 $ 7,333
Employee share-based compensation expense 258 222 1,025 931
Payroll tax on stock option exercises 3 10 23 36
Compensation expense related to acquisitions and investments 68 29 427 93
In-process research and development - 74 3 81
Amortization of acquisition-related intangible assets 203 157 732 563
Total adjustments to GAAP income before provision for income taxes 532 492 2,210 1,704
Income tax effect (151) (154) (677) (603)
Effect of retroactive tax legislation - - - (60)
Total adjustments to GAAP provision for income taxes (151) (154) (677) (663)
Non-GAAP net income $ 2,395 $ 2,268 $ 9,585 $ 8,374
Diluted net income per share:
GAAP $ 0.33 $ 0.31 $ 1.31 $ 1.17
Non-GAAP $ 0.40 $ 0.36 $ 1.56 $ 1.34
Shares used in diluted net income per share calculation:
GAAP 6,034 6,275 6,163 6,265
Non-GAAP 6,018 6,263 6,153 6,249
RECONCILIATION OF SHARES USED IN THE GAAP AND NON-GAAP DILUTED NET INCOME PER SHARE CALCULATION
(In millions)
Three Months Ended Twelve Months Ended
July 26, 2008
 		July 28, 2007
 July 26, 2008
 July 28, 2007
Shares used in diluted net income per share calculation-GAAP 6,034 6,275 6,163 6,265
Effect of SFAS 123(R) (16) (12) (10) (16)
Shares used in diluted net income per share calculation-Non-GAAP 6,018 6,263 6,153 6,249



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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.

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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. 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 Cisco's earnings release furnished today to the Securities and Exchange Commission.

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