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pww.comCisco Systems, Inc. Presents at Goldman Sachs Technology and Internet Conference 2012, Feb-15-2012 12:30 PM - NasdaqGS:CSCO

NasdaqGS:CSCO

Frank A. Calderoni [Former Chief Financial Officer and Executive Vice President] 💬

Frank A. Calderoni, the Former Chief Financial Officer and Executive Vice President of Cisco Systems, Inc., presented the following insights during the Goldman Sachs Technology and Internet Conference 2012:

Opening Remarks

  • Financial Results: Announced strong second quarter fiscal results, with revenue of $11.5 billion (up 11% YoY) and non-GAAP net income of $2.6 billion (up 23% YoY).
  • Transformation: Highlighted significant organizational transformations in the past year, including changes in structure, go-to-market strategies, processes, productivity, and financial models.
  • Financial Model: Emphasized the goal of growing profits faster than revenue over the next three years.

Second Quarter Highlights

  • Revenue Growth: Record revenue of $11.5 billion, up 11% YoY.
  • Expense Reduction: Achieved $1 billion expense reduction, one quarter ahead of schedule.
  • Balanced Growth: Solid growth in core markets (switching and routing), collaboration, data center, wireless, and security.
  • Geographic Growth: Consistent growth across regions (EMEA: 5%, U.S.: 5%, Asia: 12%).
  • Gross Margins: Stable gross margins at 62.5%.

Strategic Priorities

  • Five Foundational Priorities: Core (switching and routing), data center, collaboration, video, and business architecture (cloud, mobility, security).

Customer Alignment

  • Service Providers: Aligned with customer needs, particularly in managing increased mobility traffic (forecasted 1,200% growth over the next four years, 75% driven by video).

Capital Allocation

  • Dividend Increase: Announced a 33% increase in dividend, demonstrating commitment to shareholder returns.
  • Cash Management: Prudent management of cash to ensure long-term returns.

Q&A Session

  • Execution Issues: Confirmed that the company has made significant progress in addressing past execution issues through restructuring and transformation efforts.

  • Bookings Growth: Addressed the deceleration in bookings growth to 7%, attributing it to the discontinuation of the Flip product, tough year-over-year comparisons, and a slowdown in public sector spending.

  • Switching Business:

    • Performance: 8% revenue growth YoY.
    • Factors: Product stability, 10G transition, data center growth, and success of the 6500 campus switch.
    • Market Share: Indicated that these factors contributed to market share gains.

  • UCS and Switching Synergy: Noted that the success in servers (UCS) is helping to drive switching revenue, and vice versa, due to the integrated nature of the solutions.

  • 10G Margins: Suggested that margins improve over time with product transitions, and switching margins have steadily improved over the past year.

  • Routing Segment:

    • Strength: Reported 8% YoY growth, citing strategic alignment with service providers and competitive displacement.
    • Examples: Shared success stories with customers like Korea Telecom and MSOs leveraging WiFi as a managed service.

  • Video Segment:

    • Growth: 23% YoY growth, driven by North American stability, European IP set-top box ramp, and Chinese market entry.
    • Transition: Emphasized the transition from hardware to software and services with Videoscape, which will be meaningful in 2-3 years.

  • WiFi Penetration: Suggested that enterprise WiFi is in the mid-penetration stage with significant growth opportunities.

  • New Products Growth: Categorized wireless, data center, and video as high-growth areas, with a 23% increase in the last quarter.

  • Financial Model:

    • Revenue Growth: Targeting 5-7% revenue growth over the next three years.
    • Operating Margins: Expected to expand, contributing to 7-9% EPS growth.
    • Productivity: Increased revenue per employee, indicating productivity improvements.
    • Product Gross Margins: Expected to remain stable despite mix fluctuations.

  • M&A Strategy:

    • Focus: Aligned with the five foundational priorities.
    • Size: Targeting 100-employee companies.
    • Balance: Looking for a mix between enterprise and service provider-focused acquisitions.

  • Dividend Policy: Committed to supporting the dividend, with a recent 33% increase, and will continue to support it over time.

  • SaaS Businesses:

    • Importance: Confirmed the importance of SaaS businesses like WebEx and plans to continue investing and expanding SaaS offerings.

  • Session Border Controllers: Considered important but has not publicly disclosed specific strategies or acquisition plans.

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