Cisco Systems, Inc. (CSCO)
Q1 2010 Earnings Call
November 04, 2009 4:30 p.m. ET

Executives

Laura Graves - Director, Global Investor Relations
John T. Chambers - Chairman and Chief Executive Officer
Frank A. Calderoni - Executive Vice President and Chief Financial Officer
Ned Hooper - Senior Vice President, Corporate Development and Consumer and Small Business
Robert W. Lloyd - Executive Vice President, Worldwide Operations
Padmasree Warrior - Chief Technology Officer

Analysts

Brian Modoff - Deutsche Bank
Jeffrey Evenson - Sanford Bernstein
Jeffrey Kvaal - Barclays Capital
Ittai Kidron - Oppenheimer
Jason Ader - William Blair
Simona Jankowski - Goldman Sachs
Nikos Theodosopoulos - UBS
Mark Sue - RBC Capital Markets
Samuel Wilson - JMP Securities
Simon Leopold - Morgan Keegan

Presentation

Operator

Welcome to Cisco Systems'' First Quarter and Fiscal Year 2010 Financial Results Conference Call. At the request of Cisco Systems, today''s conference is being recorded. If you have any objections, you may disconnect. Now, I would like to introduce Ms. Laura Graves, Director of Global Investor Relations for Cisco Systems. Ma''am, you may begin.

Laura Graves

Thank you, operator. And good afternoon, everyone. Welcome to our 79th quarterly conference call. I''m joined today by John Chambers, our Chairman and CEO; Frank Calderoni, Executive Vice President and Chief Financial Officer; Rob Lloyd, Executive Vice President of Worldwide Operations; Ned Hooper, Chief Strategy Officer and Senior Vice President of our Consumer Business; Padmasree Warrior, Chief Technology Officer and Blair Christie, our Senior Vice President of Corporate Communications.

The Q1 fiscal year 2010 press release is posted on U.S. HighTech Marketwire and on the Cisco website at newsroom.cisco.com. I would like to remind you that we have a corresponding webcast with slides. In those lines you will find the financial information we cover during this conference call as well as additional financial metrics and analysis that you might find helpful. Downloadable Q1 financial statements will be available following the call, including revenue by product and geography. Income statements, full GAAP to non-GAAP reconciliation information, balance sheets and cash flow statements can be found on our website in the investor relations section. Click on the financials tab in the IR website to access the webcast slides and these documents.

A replay of this call will be available via telephone from November 4 through November 11 at 866-357-4205 or 203-369-0122 for international callers and is also available from November 4 through January 15 on Cisco''s IR website at investor.cisco.com.

Throughout this conference call we will be referencing both GAAP and non-GAAP financial results and these financial results in the press release are unaudited. The matters we will be discussing today include forward-looking statements and as such, are subject to the risks and uncertainties that we detail in our documents filed with the SEC, specifically the most recent annual report on Form 10K and any applicable amendments which identify important risk factors that could cause actual results to differ materially from those contained in our forward-looking statements. As a reminder, unauthorized reporting of this conference call is not permitted.

And with that, I''d like to turn the call over to John for his commentary on the quarter.

John T. Chambers

Laura, thank you very much. During the opening comments of the conference call I will focus on what I view to be the key takeaways for Q1 fiscal year 2010. First, a very candid discussion about what we are seeing in the market on a global basis relative to Q1 and its effects on our Q2 fiscal 2010 expectations.

Secondly, an update on our rapidly improving financial measurements and some interesting sequential quarterly metrics. Third, a high-level summary of some of our investments and results in new market adjacencies in Q1. And finally, our revenue guidance for Q2 fiscal year 2010 with the appropriate caveats.

Following my opening comments Frank will provide additional details on Q1. And then in the third section, we will focus on business momentum from a strategy, customer segment, geographic and product basis. Frank will then follow with additional financial parameters around our guidance. I will then wrap it up with some comments in terms of Cisco''s momentum going into Q2 and finally our Q&A session.

From a summary point of view I think there are a number of key takeaways from the results in Q1 and I will attempt to cover these at this time. First, from a financial perspective, the quarter was very strong versus our expectations, given the challenges that we -- that are occurring in the global economy. Expanding with additional details on the strength of Q1 from a financial perspective, almost all of our financial measurements were above or at the high end of our expectations.

Revenue of $9 billion year-over-year decreasing approximately 13% was dramatically better than our expectations of down 15% to 17%. Non-GAAP earnings per share of $0.36 were again, well above our expectations. Expense management was very solid with non-GAAP OpEx decreasing approximately 10% year-over-year while non-GAAP product gross margins were extremely strong at 66.3%, which was the best in nearly four years.