This summary is based on the second quarter fiscal 2008 earnings call conducted by Cisco Systems Inc. (CSCO) on February 6, 2008.
Management:
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Chairman and Chief Executive Officer: John T. Chambers
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Executive Vice President, Chief Financial Officer: Dennis D. Powell
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Executive Vice President of Worldwide Operations and Business Development: Rick Justice
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Senior Vice President of Customer Solutions Finance: Frank Calderoni
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Senior Vice President of Corporate Development and Consumer and Small Business: Ned Hooper
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Senior Vice President General Manager, Service Provider Technology Group: Pankaj Patel
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Chief Executive Officer, Scientific-Atlanta: Jim McDonald
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Vice President, Corporate Communications and Investor Relations: Blair Christie
Key Investors Issues
- Revenues were up 16.5% to $9.8 billion.
- Earnings rose 11% to $2.1 billion or 33 cents a share from $1.9 billion or 31 cents in the prior year.
- The firm repurchased $4 billion of common stock or 139 million shares of stock at an average price of $28.67.
Half Year Highlights:
- Net sales were $19.4 billion, up 17% from $16.6 billion in 2006.
- Net income was $4.3 billion or 68 cents per share, compared with $3.5 billion or 56 cents per share in the prior year.
- To date, the firm had repurchased and retired 2.5 billion shares of common stock at an average price of $20.39 per share.
Second Quarter Highlights
Revenue were $9.8 billion, a 16.5% from $8.4 billion in the prior year on strong order growth with product book-to-bill of 1.
- Routing revenue continued to be strong at $2 billion up 18% year over year, due primarily to continued growth in the high end router portfolio at 27% with particular strength in the crs1, 7600, and the GSR family.
- Switching revenue was $3.3 billion, an increase of 11% with balanced growth in both modular and fixed portfolio.
- Advanced Technologies revenue totaled $2.4 billion, representing an increase of 25% with strong performance in unified communications, storage and video systems.
- Other product revenues totaled $523 million, an increase of 9%, while total service revenue was $1.6 billion, up 18% as a result of solid growth across all geographies.
Net income was up 11% to $2.1 billion or 33 cents a share from $1.9 billion or 31 cents in the prior year on revenue growth.
- Gross margins was 65.5%, up 0.7 point year over year, with the favorability driven primarily by continued cost savings partially offset by pricing and discounts.
- Service margins were 63.5%, down from 64.4% in the prior year with the variability due to various factors such as the change in mix between technical support services and advanced services as well as the timing of support contract initiations and renewals.
- Cash, cash equivalents and investments were $22.7 billion down $2 billion sequentially as the firm generated $2.4 billion in cash flow from operations as well as $626 million in proceeds from stock option exercises and employees stock purchases.
- The firm repurchased $4 billion of common stock or 139 million shares of stock at an average price of $28.67.
Days sales outstanding or DSO was 39 days, up from 33 days in the prior period with the increase attributable to several large multi-year service agreements that were signed in January.
- Total inventory remained flat at $1.3 billion, though inventory turns improved from 10.0 times to 10.5.
- Inventory purchase commitments were $2.7 billion up 10% from the prior year.
- Headcount increased by 1,000 to 64,087 as a result of hires in sales, services and engineering.
Market Transitions:
- Phase 2 of the Internet is expected to drive growth and differentiate the firm from peers over the next five years, driven by collaboration enabled by network Web 2.0 technologies.
- This collaboration enabled by the network Web 2.0 technologies will transform business models with a speed not seen in over a decade, and the firm is well positioned to lead in terms of thought leadership and implementation.
Product Performance:
- In routing revenue grew by 18% led by the high end routing products which grew in the high 20s year over year, while in Switching, revenues grew year over year by 11%.
- In Advanced Technologies, revenue rose by 25% and at the Data center revenue growth was strong at 27% for the MDS 9000 product family.
- The firm successfully launched the Nexus 7000 series data center platform which is the first in a new line of switching products optimized for high density 10 gigabit Ethernet in the data center and the expansion of the Catalyst switch family.
Unified Communications including products from the WebEx acquisition had revenue growth of 60% year over year.
- Video continues to drive service provider network demand and is potentially the killer application for loading and bringing value to the network.
- Consumer video and broadband build-outs are driving much of the service provider investments.
- From an enterprise and commercial perspective, the global video implementations such as IPTV, TelePresence, Unified Communications, physical security and other video applications will drive increasing future network loads and therefore also require upgrades to existing networks.
