Cisco Reports Second Quarter Earnings

SAN JOSE, CA – February 9, 2011 – Cisco (NASDAQ: CSCO)

• Q2 Net Sales: $10.4 billion (increase of 6% year over year)
• Q2 Net Income: $1.5 billion GAAP; $2.1 billion non-GAAP
• Q2 Earnings per Share: $0.27 GAAP (decrease of 16% year over year); $0.37 non-GAAP (decrease of 8% year over year)

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its second quarter results for the period ended January 29, 2011. Cisco reported second quarter net sales of $10.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.5 billion or $0.27 per share, and non-GAAP net income of $2.1 billion or $0.37 per share.

“The quarter played out as we expected. Our strategy of tightly integrating our multiple products through an architectural approach is working, and we are delivering innovation in each major product family,” said John Chambers, chairman and CEO, Cisco. “As a company, we are going through a period of transition as we move aggressively in the market with our architectural strategy. We have managed these market transitions many times, positioning Cisco and our customers for success. Simply put, we are owning our evolution and the next generation of industry leadership.”

Net sales for the first six months of fiscal 2011 were $21.2 billion, compared with $18.8 billion for the first six months of fiscal 2010. Net income for the first six months of fiscal 2011, on a GAAP basis, was $3.5 billion or $0.61 per share, compared with $3.6 billion or $0.62 per share for the first six months of fiscal 2010. Non-GAAP net income for the first six months of fiscal 2011 was $4.5 billion or $0.80 per share, compared with $4.5 billion or $0.76 per share for the first six months of fiscal 2010.

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 6.

Cisco will discuss second quarter results and business outlook on a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

Other Financial Highlights

• Cash flows from operations were $2.6 billion for the second quarter of fiscal 2011, compared with $2.5 billion for the second quarter of fiscal 2010, and compared with $1.7 billion for the first quarter of fiscal 2011.
• Cash and cash equivalents and investments were $40.2 billion at the end of the second quarter of fiscal 2011, compared with $39.9 billion at the end of fiscal 2010, and compared with $38.9 billion at the end of the first quarter of fiscal 2011.
• During the second quarter of fiscal 2011, Cisco repurchased 89 million shares of common stock under the stock repurchase program at an average price of $20.15 per share for an aggregate purchase price of $1.8 billion. As of January 29, 2011, Cisco had repurchased and retired 3.3 billion shares of Cisco common stock at an average price of $20.81 per share for an aggregate purchase price of approximately $69.3 billion since the inception of the stock repurchase program. On November 18, 2010, Cisco’s board of directors authorized up to $10 billion in additional repurchases of its common stock under the stock repurchase program, increasing the authorized amount of aggregate stock repurchases to $82 billion. The remaining authorized amount for stock repurchases under this program, including this additional authorization, is approximately $12.7 billion with no termination date.
• Days sales outstanding in accounts receivable (DSO) at the end of the second quarter of fiscal 2011 were 40 days, compared with 38 days at the end of the first quarter of fiscal 2011, and compared with 39 days at the end of the second quarter of fiscal 2010.
• Inventory turns on a GAAP basis were 10.6 in the second quarter of fiscal 2011, compared with 11.2 in the first quarter of fiscal 2011, and compared with 12.1 in the second quarter of fiscal 2010. Non-GAAP inventory turns were 10.0 in the second quarter of fiscal 2011, compared with 10.8 in the first quarter of fiscal 2011, and compared with 11.7 in the second quarter of fiscal 2010.

“With total cash generation of $2.6 billion for the quarter, and revenues of $10.4 billion, our financial strength and cash position is clearly a major competitive advantage for us,” said Frank Calderoni, executive vice president and chief financial officer, Cisco. “We are focused on strong execution and moving the business forward to deliver results for our customers, our shareholders, and our employees.”

Select Global Business Highlights

• Cisco announced its intent to acquire privately held Pari Networks, Inc., a leading provider of network configuration and change management (NCCM) and compliance management solutions.
• Cisco completed the acquisition of privately held LineSider Technologies, Inc., a leading provider of network management software that helps customers build the network services necessary to securely create and deploy cloud computing infrastructure.
• Cisco and BMC Software, Inc. announced a strategic alliance to develop and market new solutions for large-scale, multi-tenant cloud computing infrastructures.

Cisco Innovation

• Cisco introduced Cisco Videoscape^TM, a comprehensive TV platform for service providers that is designed to bring together digital TV and online content with social media and communications applications to create a new, truly immersive home and mobile video entertainment experience.
• Cisco announced the Cisco Virtualization Experience Infrastructure (VXI), a comprehensive desktop virtualization system and solutions comprising collaboration, borderless networking and data center technologies from Cisco and an ecosystem of virtualization vendors.
• Cisco introduced the Cisco Catalyst® 3560-C and Catalyst 2960-C Compact Series Switches designed to deliver highly-secure, cost-effective network connectivity and power outside the wiring closet.
• Cisco added new networking, security and storage products to its “Connect” and “Secure” small business portfolios to help enable small businesses to quickly, easily and more securely connect employees and devices with the content they need, wherever they need it.
• Cisco unveiled a series of products, innovations and service offerings designed to make Cisco TelePresence® and video collaboration more affordable, simpler to manage under a common architecture, and more available through cloud services.

Select Customer Announcements

• Verizon Wireless teamed up with Cisco to deliver a 4G version of Cisco Cius^TM and also announced the industry’s first 4G wireless wide-area network (WAN) interface on the Cisco second-generation Integrated Services Router (ISR G2), which is designed to enable Verizon Wireless’ 3G and 4G enterprise and small and medium-sized business customers to drive innovation and create new business models.
• Hong Kong Broadband Network, one of the fastest growing broadband service providers in Hong Kong, has committed to the Cisco CRS-3 Carrier Routing System as the foundation for its core IP next-generation network.
• NBN Co, the company set up by Australia’s federal government to design, build and operate Australia’s wholesale-only, high-speed broadband network, selected Cisco to lead the implementation of its data center infrastructure.
• SONDA, a Latin American leader in IT services with a presence in nine countries, announced with VCE, the Virtual Computing Environment Company formed by Cisco and EMC with investments from VMware and Intel, that SONDA will be offering new cloud computing services based on VCE’s Vblock^TM infrastructure platform.
• Etisalat launched the UAE’s first Public TelePresence room in collaboration with Tata Communications and Cisco.
• Cardiff, Wales’s 74,500-seat Millennium Stadium chose Cisco StadiumVision® with the goal of delivering an unprecedented sporting experience to fans and visitors.

Editor’s Note:

• Q2 FY 2011 conference call to discuss Cisco’s results along with its business outlook will be held at 1:30 p.m. Pacific Time, Wednesday, February 9, 2011. Conference call number is 888-848-6507 (United States) or 212-519-0847 (international).
• Conference call replay will be available from 4:30 p.m. Pacific Time, February 9, 2011 to 4:30 p.m. Pacific Time, February 16, 2011 at 866-357-4205 (United States) or 203-369-0122 (international). The replay also will be available via webcast from February 9, 2011 through April 22, 2011 on the Cisco Investor Relations website at http://investor.cisco.com.
• Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, February 9, 2011. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

About Cisco
Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

This release 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 statements regarding strategy, product innovation, operational execution and delivery of results) 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, our customer markets and 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 return on our investments in certain market adjacencies and geographical locations; 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 our product and service markets, including the data center; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; our ability to achieve 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, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Form 10-K and 10-Q, filed on September 21, 2010 and November 23, 2010, respectively. The financial information contained in this release 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 10-Q, as each may be amended from time to time. Cisco’s results of operations for the three and six months ended January 29, 2011 are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in this release 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 release.

This release includes non-GAAP net income, non-GAAP net income per share data and non-GAAP inventory turns.

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 and non-GAAP net income per share data 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. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the period presented.

For its internal budgeting process, Cisco’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, other acquisition-related costs, significant asset impairments and restructurings, the income tax effects of the foregoing, significant effects of retroactive tax legislation, and significant transfer pricing adjustments related to share-based compensation. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future, there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results.

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 release furnished today to the Securities and Exchange Commission.

Copyright © 2011 Cisco Systems, Inc. and or its affiliates. All rights reserved. Cisco, the Cisco logo, Cisco Systems, Catalyst, Cisco Cius, Cisco StadiumVision, Cisco TelePresence, and Cisco Videoscape are registered trademarks or trademarks of Cisco and/or its affiliates in the United States and other countries. Third party 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.

Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation.

Additional reconciliations between GAAP and non-GAAP financial measures are provided in the tables that follow on page 10.

Note:

Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation.

The income tax benefit for share-based compensation expense was $119 million and $228 million for the three and six months ended January 29, 2011, respectively, and $100 million and $185 million for the three and six months ended January 23, 2010, respectively.

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